Do consumers search for the highest price?
Norbert Schulz * and Konrad Stahl ** We develop a model of search among substitutes for the best combination of commodity variant and price, in which the structure of search costs is manipulable by the suppliers of these variants, e.g., by joining an existing market or opening a new one. We analyze the subgame-perfect equilibria arising in a multistage game involving specialized firms’ choice of entry, variant, and price, and we compare them to a multiproduct monopol- ist’s optimal choice. We show that equilibrium prices increase in the number of sub- stitutes sold in one market and that, in the situation considered here, monopoly increases welfare.
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