Consumer Search and Retail Market Structure

This paper proposes a framework for studying how consumer search and multiproduct purchase a¤ect retail market structure. To provide one-stop shopping convenience and attract more consumers, single-product shops supplying di¤erent products can merge to form a multiproduct retailer. The merger, however, also changes the market structure and a¤ects price competition. When the search friction is not too high, the equilibrium market structure is asymmetric and multiproduct and single-product retailers coexist. This often leads to the weakest price competition and is the worst for consumers among all possible market structures. Due to the endogeneity of the market structure, reducing the search friction does not necessarily induce lower market prices and higher consumer welfare. Keywords: consumer search, conglomerate merger, multiproduct pricing, retail market structure JEL classi…cation: D11, D43, D83, L13 We are grateful to Mark Armstrong, Heski Bar-Isaac, Maarten Janssen, Elena Krasnokutskaya, Barry Nalebu¤, Volker Nocke, Anton Sobolev, John Thanassoulis and seminar participants in various places for their helpful comments.