Paper: Product Design, Competition and Prices with Declining Search Frictions
Abstract: As search frictions becomes smaller in a product market, buyers are able to locate more and more sellers. Sellers respond by designing varieties of the product that are more and more specialized. I find necessary and sufficient conditions under which the increase in specialization exactly offsets the decline in search frictions, thus leading to stationary competition and constant price dispersion. Instead, the decline in search frictions leads to Smithian growth
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