Search and Competition Under Product Quality Uncertainty*

Abstract

AbstractI review models of consumer search and competition when product quality is uncertain and differs across firms. Although firms are vertically—and possibly also horizontally—differentiated, an appropriate symmetric price equilibrium with optimal consumer search can be neatly characterized. I propose a “random‐quality” framework that unifies these models and discuss their insights on the operation of consumer search markets, focusing on (i) online advertising and search through platforms, (ii) the welfare effects of entry in search markets, and (iii) the role of quality observability under search frictions. I suggest directions for further research on these and related topics.