A Search Cost Model of Obfuscation

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.