Price Dispersion and Consumer Reservation Prices
AbstractWe describe firm pricing when consumers follow simple reservation price rules. In stark contrast to other models in the literature, this approach yields price dispersion in pure strategies even when firms have the same marginal costs. At the equilibrium, lower price firms earn higher profits. The range of price dispersion increases with the number of firms: the highest price is the monopoly price, while the lowest price tends to marginal cost. The average transaction price remains substantially above marginal cost even with many firms. The equilibrium pricing pattern is the same when prices are chosen sequentially. Copyright Blackwell Publishing 2005.
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Bibliographic InfoArticle provided by Wiley Blackwell in its journal Journal of Economics & Management Strategy.
Volume (Year): 14 (2005)
Issue (Month): 1 (03)
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Web page: http://www.kellogg.northwestern.edu/research/journals/JEMS/
Other versions of this item:
- C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
- D43 - Microeconomics - - Market Structure and Pricing - - - Oligopoly and Other Forms of Market Imperfection
- D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search, Learning, and Information
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- Giovanni Anania & Rosanna Nisticò, 2011. "Price Dispersion, Search Costs And Consumers And Sellers Heterogeneity In Retail Food Markets," Working Papers 201105, Università della Calabria, Dipartimento di Economia, Statistica e Finanza (Ex Dipartimento di Economia e Statistica).
- Anania, Giovanni & Nistico, Rosanna, 2012. "Price dispersion, search costs and consumers and sellers heterogeneity in retail food markets," 2012 Conference, August 18-24, 2012, Foz do Iguacu, Brazil 125594, International Association of Agricultural Economists.
- Braido, Luis H.B., 2009. "Multiproduct price competition with heterogeneous consumers and nonconvex costs," Journal of Mathematical Economics, Elsevier, vol. 45(9-10), pages 526-534, September.
- Alfredo Martín-Oliver & Vicente Salas-Fumás & Jesús Saurina, 2008.
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- Alfredo Martin-Oliver & Vicente Salas-Fumas & Jesús Saurina, 2008. "Search Cost and Price Dispersion in Vertically Related Markets: The Case of Bank Loans and Deposits," Review of Industrial Organization, Springer, vol. 33(4), pages 297-323, December.
- Kaminski, Bogumil & Latek, Maciej, 2012. "A Simple Model of Bertrand Duopoly with Noisy Prices," MPRA Paper 41333, University Library of Munich, Germany.
- Jacint Balaguer Coll & José C. Pernías, 2010. "Spatial density, average prices and price dispersion. Evidence from the Spanish hotel industry," Working Papers. Serie EC 2010-03, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie).
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