Collusion With Costly Consumer Search

• Authors: Vaiva Petrikaite.
• International Journal of Industrial Organization, Vol. 44 , 1--10, December, 2015.

I use standard consumer search models to study how an increase in market transparency (lower search costs or higher share of fully informed consumers) affects cartel stability. When firms sell horizontally differentiated products, cartels become more stable as the search cost increases, with homogeneous products, by contrast, the opposite holds. A higher share of fully informed consumers makes collusion less stable when the market is initially sufficiently transparent, whereas it happens otherwise if the market is originally little transparent.