Oligopolistic Pricing With Online Search

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The author set up a game-theoretic model to examine the oligopolistic price competition, considering two features of online search: the existence of a common search ordering and shoppers who have non-positive search cost. They find that in equilibrium firms set their prices probabilistically rather than deterministically, and different firms follow different price distributions. The equilibrium pricing pattern exhibits an interesting local-competition feature, in which direct price competition occurs only between firms adjacent to each other. Further, they incorporate consumers' search strategies into the model so that both search order and stopping rules are determined rationally by consumers.