DO CONSUMERS SEARCH FOR THE HIGHEST PRICE - OLIGOPOLY EQUILIBRIUM ANDMONOPOLY OPTIMUM IN DIFFERENTIATED-PRODUCTS MARKETS

We develop a model of search among substitutes for the best combinatio n of commodity variant and price, in which the structure ofsearch cost s is manipulable by the suppliers ofthese val ianfs, e.g., by joining an existing market or opening a new one. We analyze the subgame-perfec t equilibria arising in a multistage game involving specialized firms' choice of entry, variant, and price, and we compare them to a multipr oduct monopolist's optimal choice. We show that equilibrium prices inc rease in the number of substitutes sold in one market and that, in the situation considered here, monopoly increases welfare.