Discussion paper

DP14521 Search, Information and Prices

Consider a market with many identical firms offering a homogeneous good. A
consumer obtains price quotes from a subset of firms and buys from the firm offering
the lowest price. The \price count" is the number of firms from which the consumer
obtains a quote. For any given ex ante distribution of the price count, we obtain a tight
upper bound (under first-order stochastic dominance) on the equilibrium distribution
of sale prices. The bound holds across all models of firms' common-prior higher-order
beliefs about the price count, including the extreme cases of complete information
(firms know the price count exactly) and no information (firms only know the ex ante
distribution of the price count). A qualitative implication of our results is that even a
small ex ante probability that the price count is one can lead to dramatic increases in
the expected price. The bound also applies in a wide class of models where the price
count distribution is endogenized, including models of simultaneous and sequential
consumer search.


Morris, S, D Bergemann and B Brooks (eds) (2020), “DP14521 Search, Information and Prices”, CEPR Press Discussion Paper No. 14521. https://cepr.org/publications/dp14521