Do Consumers Search for the Highest Price? Oligopoly Equilibrium and Monopoly Optimum in Differentiated Products Markets

RAND JOURNAL OF ECONOMICS, Vol. 27, no. 3

Posted: 28 Aug 1996

See all articles by Norbert Schulz

Norbert Schulz

University of Wuerzburg - Department of Economics

Konrad O. Stahl

University of Mannheim - Department of Economics; Centre for Economic Policy Research (CEPR)

Abstract

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 monopolist's optimal choice. We show that equilibrium prices increase in the number of substitutes sold in one market and that, in the situation considered here, monopoly increases welfare.

JEL Classification: D42, D43, L12, L13

Suggested Citation

Schulz, Norbert and Stahl, Konrad O., Do Consumers Search for the Highest Price? Oligopoly Equilibrium and Monopoly Optimum in Differentiated Products Markets. RAND JOURNAL OF ECONOMICS, Vol. 27, no. 3, Available at SSRN: https://ssrn.com/abstract=3274

Norbert Schulz

University of Wuerzburg - Department of Economics ( email )

Sanderring 2
Lehrstuhl VWL III
D-97070 Wuerzburg
Germany
+49-931/31 29 60 (Phone)
+49-931/31 26 21 (Fax)

Konrad O. Stahl (Contact Author)

University of Mannheim - Department of Economics ( email )

D-68131 Mannheim
Germany
+49 621 181 1875 (Phone)
+49 621 181 1874 (Fax)

Centre for Economic Policy Research (CEPR)

London
United Kingdom

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