Firms ’ Strategies for Reducing the Effectiveness of Consumer Price Search*

A simple model of competition with imperfect consumer information has firms setting prices using mixed strategies, and equilibrium average prices become higher as price comparisons by consumers become more difficult. For example, buyers may be comparing prices originating from the same supplier: either one firm setting multiple prices or a group of colluding firms. The resulting greater number of captive consumers implies added monopoly power. Results are given showing the shift in welfare from consumers to producers, both with exogenous and endogenous consumer behaviour. However consumers might search more or less with multiple prices. The implications of the results for competition policy and recent judgements are considered