Collusive price can be lower than equilibrium price if there is search cost

This paper analyzes a search model in which consumers vary in their demands. We show that the collusive price can be lower than the equilibrium price in the market because, more consumers join the market if all firms lower prices than if a single firm lowers its price. This result can explain why sometimes stores around resort areas voluntarily regulate their prices. In our model, such price reducing collusion is better than competition for the consumers as well as the firms.