Nonsequential search equilibrium with search cost heterogeneity |
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| Institution: | 1. Department of Economics, Vrije Universiteit Amsterdam, De Boelelaan 1105, 1081 HV Amsterdam, The Netherlands;2. Department of Business Sciences, Sapientia University, Pia?a Libert??ii nr. 1, Miercurea Ciuc 530104, Romania;3. Kelley School of Business, Indiana University, 1309 E. 10th St, Bloomington, IN 47405, USA;1. University of Nottingham and CEP, University Park, Nottingham, NG7 2RD, United Kingdom;2. CEPR, United Kingdom;3. University of Mannheim, L7 3-5, 68131 Mannheim, Germany;1. Department of Economics, Kansas State University, 327 Waters Hall, Manhattan, KS 66506, United States;2. Department of Economics, LeBow College of Business, Drexel University, Philadelphia, PA 19104, United States;3. Department of Economics, Finance and Quantitative Analysis, Brock School of Business, Samford University, Birmingham, AL 35229, United States;1. Fuqua School of Business, Duke University, United States;2. Department of Economics, Duke University, United States |
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| Abstract: | We generalize the model of Burdett and Judd (1983) to the case where an arbitrary finite number of firms sells a homogeneous good to buyers who have heterogeneous search costs. We show that a price dispersed symmetric Nash equilibrium always exists. Numerical results show that the behavior of prices and consumer surplus with respect to the number of firms hinges upon the nature of search cost dispersion: when search costs are relatively concentrated, entry of firms leads to lower average prices and greater consumer surplus; however, for relatively dispersed search costs, the mean price goes up and consumer surplus may decrease with the number of firms. |
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