Greater search cost reduces prices

Consumers learn their valuation for most goods and services sooner than the price or availability. In such markets, optimal of each firm falls in search cost consumers, despite exit lower-value consumers when becomes costlier. The reason is that a greater causes inframarginal to instead switching firms. marginal respond less may become more numerous. elastic demand raises prices. At high enough cost, no consumer switches. Each monopolist but sets lower under competition over switchers because changes shape some exit. Total surplus, profits fall cost. Consumer surplus total are higher do not know valuations. results robust various assumptions, example having zero firms running out stock.