Searching for a suitable commodity variant before purchasing it is a very widespread phenomenon. It leads choosy consumers to conduct search in a marketplace where many alternative variants are offered, in spite of the fact that these consumers often incur a higher travel cost in visiting that marketplace, and pay more for the chosen variant in the end. The reasoning behind this is that inspecting a large number of variants in that marketplace is less costly and on average leads to increased utility.

In Discussion Paper No. 1277, Norbert Schulz and Research Fellow Konrad Stahl develop a model of search among substitutes for the best combination of commodity variant and price, in which the structure of search costs can be manipulated by the suppliers of these variants, for example by joining an existing market or opening a new one. The paper analyses the subgame perfect equilibria that arise in a multistage game involving specialised firms' choice of entry, variant and price; and compare them to a multiproduct monopolist's optimal choice. Together with the existence and uniqueness of symmetric equilibria, it is shown that equilibrium prices increase in the number of substitutes sold in one market, and that a monopolist selling the same number of variants charges lower prices. The monopolist will also end up selling at least as much variety.