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Price Dispersion, Price Flexibility, and Repeated Purchasing

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  • John McMillan
  • Peter B. Morgan

Abstract

This paper presents a search model in which consumers repeatedly purchase some good. The repetition of purchases leads to the formatio n of implicit contracts with sellers that generate a kink in the demand curve facing each seller. These kinks can generate equilibrium price dispersion under conditions where single-purchase search models predict no price dispersion. Despite the kinks, prices are at least partially flexible in that some, and possibly all, sellers change their prices in response to changes in production costs or demand.

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Bibliographic Info

Article provided by Canadian Economics Association in its journal Canadian Journal of Economics.

Volume (Year): 21 (1988)
Issue (Month): 4 (November)
Pages: 883-902

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Handle: RePEc:cje:issued:v:21:y:1988:i:4:p:883-902

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Citations

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Cited by:
  1. Mariano Tommasi, 1993. "The Consequences of Price Instability on Search Markets," UCLA Economics Working Papers 700, UCLA Department of Economics.
  2. Mariano Tommasi, 1992. "Intertemporal Pricing in Search Markets, Customer Markets and Price Rigidity," UCLA Economics Working Papers 681, UCLA Department of Economics.
  3. Chudik, Alexander, 2012. "A simple model of price dispersion," Economics Letters, Elsevier, vol. 117(1), pages 344-347.
  4. Saul Lach, 2002. "Existence And Persistence Of Price Dispersion: An Empirical Analysis," The Review of Economics and Statistics, MIT Press, vol. 84(3), pages 433-444, August.
  5. Sibly, Hugh, 2001. "Price Inflexibility in Markets with Repeat Purchasing," Journal of Macroeconomics, Elsevier, vol. 23(3), pages 459-475, July.
  6. Smith, Vincent H. & Johnson, James B., 2005. "Environmental Regulation, Market Power and Price Discrimination in the Agricultural Chemical Industry," 2005 Annual meeting, July 24-27, Providence, RI 19520, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
  7. Joaquín Alegre & Maria Sard, 2006. "Tour operators' price strategie in the Balearic Islands," DEA Working Papers 19, Universitat de les Illes Balears, Departament d'Economía Aplicada.
  8. Adrienne M. Ohler, 2011. "Who Searches for Low Prices? Population Characteristics and Price Dispersion in the Market for Prescription Drugs," Working Paper Series 20110701, Illinois State University, Department of Economics.
  9. Timothy J. Richards, 2006. "Sales by multi-product retailers," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 27(4), pages 261-277.

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