Local Search Markets and External Competition (19-13)

Increased competition tends to benefit all buyers with increasing product variety and decreasing prices. However, if local and external market channels compete for the same class of products, increased competition from the external market crowds out local variety. Under local monopoly, local buyer surplus co-moves with external buyer surplus. Under local free entry oligopoly, buyer surplus is U-shaped. If buyer surplus in the external market is low, local surplus is better provided by local oligopoly, but moves against external surplus; if it is high, local and external surplus co-move, and local surplus is better provided by local monopoly.