Search, Obfuscation, and Price Elasticities on the Internet

We examine the competition between a group of Internet retailers who operate in an environment where a price search engine plays a dominant role. We show that for some products in this environment, the easy price search makes demand tremendously price-sensitive. Retailers, though, engage in obfuscation-practices that frustrate consumer search or make it less damaging to firms-resulting in much less price sensitivity on some other products. We discuss several models of obfuscation and examine its effects on demand and markups empirically.