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Prices and heterogeneous search costs
Author(s) -
MoragaGonzález José Luis,
Sándor Zsolt,
Wildenbeest Matthijs R.
Publication year - 2017
Publication title -
the rand journal of economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 3.687
H-Index - 108
eISSN - 1756-2171
pISSN - 0741-6261
DOI - 10.1111/1756-2171.12170
Subject(s) - search cost , margin (machine learning) , economics , microeconomics , price elasticity of demand , affect (linguistics) , econometrics , computer science , machine learning , linguistics , philosophy
We study price formation in a model of consumer search for differentiated products in which consumers have heterogeneous search costs. We provide conditions under which a pure‐strategy symmetric Nash equilibrium exists and is unique. Search costs affect two margins—the intensive search margin (or search intensity) and the extensive search margin (or the decision to search rather than to not search at all). These two margins affect the elasticity of demand in opposite directions and whether lower search costs result in higher or lower prices depends on the properties of the search cost density.