Search and collusion in electronic markets

摘要

To derive or demonstrate that in a dynamic environment with reduced search costs common being in electronic market places, firm collusion can lead to higher prices of commodity products. A frequent finding is that a reduction in buyer's search costs leads to increased competition among vendors, resulting in reduced seller profits, declining prices and increased consumer welfare. Some studies suggest that prices for commodity-like products such as CDs and books are lower on the Internet, while others find no significant differences in prices across sales channels. Most of the prior research posit a static environment and focus on examining the impact of reduced buyer's search friction. The paper considers dynamic competition by infinitely lived firms. The following questions are addressed in this research: 1. What is the effect of reduced buyer search costs on the firms' ability to collude? 2. What is the effect of reduced buyer search costs when firms are already colluding? 3. Do reduced buyer search costs unambiguously increase competition and consumer surplus in a dynamic environment as compared to a static environment? The paper explores these questions under two specifications and concludes that there are numerous cases across the two specifications in which reduced price search costs for consumers result in higher dynamic prices by making self-enforcing collusion by firms viable.