Equilibrium Price Dispersion with Online Search

This paper studies how consumers' online search behavior may trigger pervasive and persistent online price dispersion. We set up a game-theoretic model to examine the oligopolistic price competition, given the two unique features of online search, namely, the existence of a common search ordering and shoppers who have non-positive search cost. We show that in absence of further heterogeneity, the unique online search behaviors alone can drive significant level of price dispersion. Specifically, we derive twodimensional price dispersion, with both temporal fluctuation and spatial variation. We show that equilibrium price expectation monotonically decreases in line with consumers' search ordering. We also uncover a unique format of equilibrium pricing with stair-like sequence of price supports and localized price competition.

• Type: Journal
• Year: 2010
• Where: HICSS
• Authors: Lizhen Xu, Jianqing Chen, Andrew B. Whinston
• Keywords: Biometrics, HICSS 2010, Online Search, Price Competition, Price Dispersion