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Inflation, price competition, and consumer search technology

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Watanabe, Makoto

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Abstract

This paper studies an (S,s) pricing model in the presence of inflation and price competition in search markets. I present a model in which consumers' search technologies can influence firms' price setting, price dispersion, and the market structure. The result obtained shows that although price competition among firms is intensified in markets where consumers' search technologies are more efficient, price inflation is, counter-intuitively, more likely to increase the monopoly power and stimulate entry of firms in these markets. The model also provides new empirical implications for firms' price setting behaviors.

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Publisher Info
Article provided by Elsevier in its journal Journal of Economic Dynamics and Control.

Volume (Year): 32 (2008)
Issue (Month): 12 (December)
Pages: 3780-3806
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Handle: RePEc:eee:dyncon:v:32:y:2008:i:12:p:3780-3806

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Related research
Keywords: (S; s) price adjustment policy Expected inflation Price competition Consumer search technology;

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References listed on IDEAS
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  2. Austan Goolsbee & Judith Chevalier, 2002. "Measuring Prices and Price Competition Online: Amazon and Barnes and Noble," NBER Working Papers 9085, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  3. Mark Bils & Peter J. Klenow, 2004. "Some Evidence on the Importance of Sticky Prices," Journal of Political Economy, University of Chicago Press, vol. 112(5), pages 947-985, October.
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  10. repec:eab:microe:377 is not listed on IDEAS
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  15. Benabou, Roland & Konieczny, Jerzy D, 1994. "On Inflation and Output with Costly Price Changes: A Simple Unifying Result," American Economic Review, American Economic Association, vol. 84(1), pages 290-97, March. [Downloadable!] (restricted)
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  16. Michael Smith & Erik Brynjolfsson, 1999. "Frictionless Commerce? A Comparison of Internet and Conventional Retailers," Computing in Economics and Finance 1999 1022, Society for Computational Economics.
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  19. Elizabeth Caucutt & Mrinal Ghosh & Christina Kelton, 1999. "Durability Versus Concentration as an Explanation for Price Inflexibility," Review of Industrial Organization, Springer, vol. 14(1), pages 27-50, February. [Downloadable!] (restricted)
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  22. Vining, Daniel R, Jr & Elwertowski, Thomas C, 1976. "The Relationship between Relative Prices and the General Price Level," American Economic Review, American Economic Association, vol. 66(4), pages 699-708, September. [Downloadable!] (restricted)
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  25. Lach, Saul & Tsiddon, Daniel, 1992. "The Behavior of Prices and Inflation: An Empirical Analysis of Disaggregated Price Data," Journal of Political Economy, University of Chicago Press, vol. 100(2), pages 349-89, April. [Downloadable!] (restricted)
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  27. Konieczny, Jerzy D, 1990. "Inflation, Output and Labour Productivity When Prices Are Changed Infrequently," Economica, London School of Economics and Political Science, vol. 57(226), pages 201-18, May. [Downloadable!] (restricted)
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