Competitive Price Discrimination, Imperfect Information, and Consumer Search

I analyse a homogeneous goods framework where firms receive binary and noisy signals about consumer valuations and consumers engage in sequential search. Firms have no information about consumers' search histories in the baseline model. Different search costs give rise to structurally different equilibria. In the unique symmetric pure-strategy equilibrium with search on the equilibrium path, prices and firm profits are higher than in any other symmetric pure-strategy equilibrium. The equilibrium with on-path search can only be sustained when search costs are at an intermediate level. At low search costs, an equilibrium is played in which there is no on-path search, but consumers use the threat of searching to ensure low prices. Search cost reductions have non-monotonic effects on consumer welfare. When firms have access to consumers' search histories, no symmetric pure-strategy equilibrium with on-path search exists. Firms benefit from having search history information only when search costs are low