Nonsequential search equilibrium with search cost heterogeneity

Abstract

We generalize the model of Burdett and Judd (1983) to the case where an arbitrary finite number of firms sells a homogeneous good to buyers who have heterogeneous search costs. We show that a price dispersed symmetric Nash equilibrium always exists. Numerical results show that the behavior of prices and consumer surplus with respect to the number of firms hinges upon the nature of search cost dispersion: when search costs are relatively concentrated, entry of firms leads to lower average prices and greater consumer surplus; however, for relatively dispersed search costs, the mean price goes up and consumer surplus may decrease with the number of firms.