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POSTING MULTIPLE PRICES TO REDUCE THE EFFECTIVENESS OF CONSUMER PRICE SEARCH *
Author(s) -
IRELAND NORMAN J.
Publication year - 2007
Publication title -
the journal of industrial economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.93
H-Index - 77
eISSN - 1467-6451
pISSN - 0022-1821
DOI - 10.1111/j.1467-6451.2007.00310.x
Subject(s) - economics , monopoly , microeconomics , imperfect competition , competition (biology) , consumer welfare , perfect information , market power , price setting , imperfect , welfare , limit price , price level , monetary economics , market economy , ecology , linguistics , philosophy , biology
In a model of competition with imperfect consumer price information and incomplete price search, some consumers may end up comparing prices originating from the same supplier: either because one firm sets multiple prices or because a group of firms colludes. This leads to added monopoly power for these firms, and average prices in the mixed strategy equilibrium become higher. There is a shift in welfare from consumers to producers, both with exogenous and endogenous consumer search behaviour. However consumers might search more or less with multiple prices. The implications for the price‐setting equilibrium, competition policy and recent judgements are considered.