DP13764 Local Search Markets and External Competition

Author(s): Patrick Legros, Konrad O Stahl
Publication Date: May 2019
Keyword(s): Global Competition, Monopoly, oligopoly, search
JEL(s): D83, L12, L13, L81
Programme Areas: Industrial Organization
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=13764

Increased competition tends to benefit all buyers with increasing product variety and de- creasing prices. However, if local and external market channels compete for the same class of products, increased competition from the external market crowds out local variety. Under local monopoly, local buyer surplus co-moves with external buyer surplus. Under local free entry oligopoly, buyer surplus is U-shaped. If buyer surplus in the external market is low, local surplus is better provided by local oligopoly, but moves against external surplus; if it is high, local and external surplus co-move, and local surplus is better provided by local monopoly.