This dissertation consists of three essays in microeconomic theory with an emphasis on consumer search and strategic experimentation. Among many issues, I shed some lights on search frictions, commitment and information.
In Chapter 1, we consider an oligopoly model in which consumers engage in sequential search based on partial product information and advertised prices. We derive a simple condition that fully summarizes consumers' shopping outcomes and use the condition to reformulate the pricing game among the sellers as a familiar discrete-choice problem. Exploiting the reformulation, we provide sufficient conditions that guarantee the existence and uniqueness of pure-strategy market equilibrium and obtain several novel insights about the effects of search frictions on market prices. Among others, we show that a reduction in search costs increases market prices, but providing more pre-search information raises market prices if and only if there are sufficiently many sellers.
In Chapter 2, I study the effects of limited price commitment on consumer search and optimal pricing. I consider an environment in which consumers are uncertain about a seller's commitment to the advertised price. I characterize the set of pure-strategy equilibria and find that a higher degree of commitment is beneficial to the consumers. I evaluate the effects of regulation that limits the extent of a seller's deviation from the advertised price and demonstrate that stricter regulation may not be welfare improving. I also consider the case where sellers have heterogeneous levels of commitment power and investigate how the difference in commitment power influences market outcomes. I find that a higher degree of commitment does not direct consumers' search order when all sellers have limited commitment. Conversely, full commitment allows a seller to dictate consumers' visit when his rivals have limited commitment. Finally, I show that the impact of search costs on prices depends on the level of commitment, the magnitude of the search cost and whether consumers have ex-ante heterogenous valuations of the product.
In Chapter 3, we consider a two-player exit game in which each player faces a one-armed bandit problem and the two players' types are negatively correlated. We provide a closed-form characterization of the unique (perfect Bayesian) equilibrium of the game. We show that, in stark contrast to the case of positive correlation, the players exit the game at an increasing rate over time and one player exits for sure before a deterministic time.