  In markets with search frictions, consumers can acquire information about
goods either through costly search or from friends via word-of-mouth (WOM)
communication. How do sellers' market power react to a very large increase in
the number of consumers' friends with whom they engage in WOM? The answer to
the question depends on whether consumers are freely endowed with price
information. If acquiring price quotes is costly, equilibrium prices are
dispersed and the expected price is higher than the marginal cost of
production. This implies that firms retain market power even if price
information is disseminated among a very large number of consumers due to
technological progress, such as social networking websites.
