Search costs decrease prices in a model of spatial competition

This paper examines the N ash equilibrium prices of stores in a spatial search model. By assumption, a large store is certain to have the particular product a consumer wants, whereas a small store has it with probability w . Large and small stores alternate with each other on a circular roadway. Consumers must search by visiting stores. In the N ash price equilibrium, large stores charge higher prices than small stores. Perhaps surprisingly, all N ash equilibrium prices are lower than in the corresponding perfect‐information‐no‐search model (for a given value w ). This last result is also demonstrated in a model with only small stores.