Senior Research Seminar: Sander Heinsalu

Abstract

The optimal price of each firm falls in the search cost of consumers, eventually to the monopoly level, despite the exit of lower-value consumers when search becomes costlier. The reason is that consumers who switch firms can be held up by charging a high price. Greater search cost reduces the fraction of incoming switchers in each firm’s demand, which decreases the hold-up motive, thus the price.

Local Organizers: Elias Carroni, Alessandro Sforza