Search Frictions and Market Concentration

When does an increase in market concentration increase prices? We consider an environment where a frictional search process affects how buyers meet firms. Prices are determined locally by Bertrand competition between firms. We find that the effect of market concentration on prices is influenced by the nature of the search process. We provide a simple condition on the search process under which the average price is increasing in market concentration. Remarkably, when this condition does not hold, an increase in market concentration may cause a fall in the average price.