If Many Seek, Ye Shall Find: Search Externalities and New Goods

Consumer search serves productive roles in an economy with multiple goods. In equilibrium, search promotes the sorting of consumers among producers, thereby enabling the market for new goods, and potentially increasing welfare and profits above the benchmark case (an economy with a single good, hence, no search). When competitors are few, additional direct competitors may benefit a firm, as more sellers may encourage more consumers to search. In return, consumer search entices producers of new goods to enter. Neither of these externalities, nor the coordination problems faced by consumers and producers, is appropriately recognized in the literature.