Costly search, capacity constraints, and Bertrand equilibrium price dispersion

This article analyzes the impact of transaction (search) costs and capacity constraints in an almost competitive market with homogeneous firms that co mpete on price. We characterize conditions under which Nash equilibria with price dispersion exist; in equilibrium, firms play pure strategies in pric es and consumers adopt a symmetric mixed search strategy. Price dispersion is possible even though consumers all have the same search cost and valuati on for the item and prices charged by all firms are common knowledge.