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Search with Learning from Prices: Does Increased Inflationary Uncertainty Lead to Higher Markups?

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Author Info
Benabou, Roland
Gertner, Robert

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Abstract

Aggregate cost uncertainty, arising from real shocks or unanticipated inflation, reduces the informativeness of prices by scrambling relative and aggregate variations. But when agents can acquire additional information, such increased noise may in fact lea d them to become better informed and price competition will intensify. The authors examine these issues in a model of search with learning where consumers search optimally from an unknown price distribution while firms price optimally given consumers' search rules. They show that the decisive factor in whether inflation variability increases or reduces the incentive to search, and thereby market efficiency, is t he size of informational costs. Copyright 1993 by The Review of Economic Studies Limited.

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File URL: http://links.jstor.org/sici?sici=0034-6527%28199301%2960%3A1%3C69%3ASWLFPD%3E2.0.CO%3B2-7&origin=bc
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Publisher Info
Article provided by Blackwell Publishing in its journal Review of Economic Studies.

Volume (Year): 60 (1993)
Issue (Month): 1 (January)
Pages: 69-94
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Handle: RePEc:bla:restud:v:60:y:1993:i:1:p:69-94

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  4. Francis Vitek, 2002. "An Empirical Analysis of Dynamic Interrelationships Among Inflation, Inflation Uncertainty, Relative Price Dispersion, and Output Growth," Working Papers 02-39, Bank of Canada. [Downloadable!]
  5. Matt Lewis, 2004. "Asymmetric Price Adjustment and Consumer Search: An Examination of the Retail Gasoline Market," Industrial Organization 0407010, EconWPA. [Downloadable!]
  6. Juan Carlos Echeverry & Marcela Eslava, . "Notas sobre la Tasa de Interés y la Inflación en Colombia," Borradores de Economia 078, Banco de la Republica de Colombia. [Downloadable!]
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  7. Evans, R. & Guinnane, T.W., 2006. "Reputational Externality and Self-Regulation," Cambridge Working Papers in Economics 0628, Faculty of Economics, University of Cambridge. [Downloadable!]
  8. Christos Ioannidis & Mick Silver, 2001. "The influence of inflation on differential price changes across European markets," Atlantic Economic Journal, International Atlantic Economic Society, vol. 29(1), pages 31-47, March. [Downloadable!] (restricted)
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  12. Ronald Johnson, 2002. "Search Costs, Lags and Prices at the Pump," Review of Industrial Organization, Springer, vol. 20(1), pages 33-50, February. [Downloadable!] (restricted)
  13. Nodir Adilov & Hedayeh Samavati, 2009. "Pump Prices and Oil Prices: A Tale of Two Directions," Atlantic Economic Journal, International Atlantic Economic Society, vol. 37(1), pages 51-64, March. [Downloadable!] (restricted)
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  15. Stanislav Radchenko, 2004. "Oil price volatility and the asymmetric response of gasoline prices to oil price increases and decreases," Industrial Organization 0408001, EconWPA. [Downloadable!]
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  16. Michael R. Baye & John Morgan & Patrick Scholten, 2006. "Information, Search, and Price Dispersion," Working Papers 2006-11, Indiana University, Kelley School of Business, Department of Business Economics and Public Policy. [Downloadable!]
  17. Raquel Lago-González & Vicente Salas-Fumás, 2005. "Market power and bank interest rate adjustments," Banco de España Working Papers 0539, Banco de España. [Downloadable!]
  18. Francisco Alcala, F. Israel Sancho, 2000. "Inflation and Factor Shares," UFAE and IAE Working Papers 460.00, Unitat de Fonaments de l'Anàlisi Econòmica (UAB) and Institut d'Anàlisi Econòmica (CSIC). [Downloadable!]
  19. Severin Borenstein & Andrea Shepard, 1996. "Sticky Prices, Inventories, and Market Power in Wholesale Gasoline Markets," NBER Working Papers 5468, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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