A Search Cost Model of Obfuscation
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Ellison_A Search Cost.pdf
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Author(s)
Ellison, Glenn
Wolitzky, Alexander Greenberg
Date Issued
October 2012
Journal
Rand Journal of Economics
Publisher
Rand Corporation
Citation
Ellison, Glenn, and Alexander Wolitzky. “A Search Cost Model of Obfuscation.” The RAND Journal of Economics 43.3 (2012): 417–441.
Version
Author's final manuscript
Abstract
This paper develops search-theoretic models in which it is individually rational for firms to
engage in obfuscation. It considers oligopoly competition between firms selling a homogeneous
good to a population of rational consumers who incur search costs to learn each firm's
price. Search costs are endogenized: obfuscation is equated with unobservable actions that
make it more time-consuming to inspect a product and learn its price. One model involves
search costs that are convex in the time spent shopping. Here, we show that even slight
convexity can dramatically change the equilibrium price distribution. A second model examines
an informational linkage between current and future search costs: consumers are
initially unaware of the exogenous component of search costs. Here, a signal-jamming
mechanism can also lead to equilibrium obfuscation.
MIT Department
Massachusetts Institute of Technology. Department of Economics
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