Product Variety and Consumer Search

Jeffrey H. Fischer
Working Paper:

Previous work on consumer search has shown that consumers facing positive search costs do not sample more than one firm; that is, no search occurs in equilibrium. This result, as well as the price charged, are independent of the magnitude of search costs. I develop a model in which consumers search for a most-preferred variety of a heterogeneous product. If products are sufficiently differentiated, consumers will sample additional firms and, consequently, search costs affect both the price charged and the probability of search.