Consumer Search with Chain Stores

TL;DR

This paper extends the Stahl Model to include heterogeneity among sellers, revealing insights into price dispersion, store size effects, and profit distribution in consumer search markets with chain stores.

Contribution

It introduces a heterogeneity extension to the Stahl Model, analyzing asymmetric equilibria and market outcomes with diverse store sizes and search costs.

Findings

Smallest sellers tend to offer the lowest prices.

Profits are generally fixed per store, favoring larger firms.

Price dispersion and stickiness persist in the model.

Abstract

The paper explores a consumer search setting where the sellers have asymmetries. The model is an extension of the popular Stahl Model, which is widely used in the literature. The extension introduces sellers with heterogeneous stores number, reflecting the typical market structure. The market consists of several sellers heterogeneous in size consumers, some of which face a cost when sequentially searching. The paper shows that no symmetric model exist in the extension and asymmetric NE of the Stahl model are found for comparison. Additional results suggest that smallest sellers will be the ones offering lowest prices, in line with several real world examples provided in the paper. However, profits remain in most cases fixed per store, making a larger firm more profitable, yet with lower sold quantity. The findings suggest that on some level price dispersion will still exist, together with some level of price stickiness, both observed in reality.