Inflation, price competition, and consumer search technology

This paper studies an (S,s) pricing model in the presence of inflation and price competition in search markets. I present a model in which consumers' search technologies can influence firms' price setting, price dispersion, and the market structure. The result obtained shows that although price competition among firms is intensified in markets where consumers' search technologies are more efficient, price inflation is, counter-intuitively, more likely to increase the monopoly power and stimulate entry of firms in these markets. The model also provides new empirical implications for firms' price setting behaviors.