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Asymmetric marginal costs in search models

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  • Shelegia, Sandro

Abstract

I show that marginal cost asymmetry has important implications for search models. In several widely used search models with mixed strategy equilibria, excluding some special cases, firms with different marginal costs cannot randomize prices in the same interval. So, even a small asymmetry in marginal costs may result in a drastic asymmetry in equilibrium prices.

Suggested Citation

  • Shelegia, Sandro, 2012. "Asymmetric marginal costs in search models," Economics Letters, Elsevier, vol. 116(3), pages 551-553.
    • Handle: RePEc:eee:ecolet:v:116:y:2012:i:3:p:551-553
    DOI: 10.1016/j.econlet.2012.05.011
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    References listed on IDEAS

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    1. Varian, Hal R, 1980. "A Model of Sales," American Economic Review, American Economic Association, vol. 70(4), pages 651-659, September.
    2. Wilde, Louis L., 1977. "Labor market equilibrium under nonsequential search," Journal of Economic Theory, Elsevier, vol. 16(2), pages 373-393, December.
    3. Burdett, Kenneth & Judd, Kenneth L, 1983. "Equilibrium Price Dispersion," Econometrica, Econometric Society, vol. 51(4), pages 955-969, July.
    4. Burdett, Kenneth & Mortensen, Dale T, 1998. "Wage Differentials, Employer Size, and Unemployment," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 39(2), pages 257-273, May.
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    Cited by:

    1. David P. Myatt & David Ronayne, 2023. "Asymmetric Models of Sales," Rationality and Competition Discussion Paper Series 450, CRC TRR 190 Rationality and Competition.
    2. Sandro Shelegia & Chris M. Wilson, 2021. "A Generalized Model of Advertised Sales," American Economic Journal: Microeconomics, American Economic Association, vol. 13(1), pages 195-223, February.
    3. Shelegia, Sandro & Wilson, Chris, 2016. "A Generalized Model of Sales," EconStor Preprints 147411, ZBW - Leibniz Information Centre for Economics.
    4. Sneha Bakshi, 2020. "Limits of price competition: cost asymmetry and imperfect information," International Journal of Game Theory, Springer;Game Theory Society, vol. 49(4), pages 913-932, December.
    5. Shahryar Gheibi, 2020. "Low-Cost-Driven Leadership: A Theory for Price Dispersion in Competitive Markets," International Journal of Business and Economics, School of Management Development, Feng Chia University, Taichung, Taiwan, vol. 19(1), pages 61-76, June.
    6. Baumann, Stuart, 2017. "Comparative Advertising: The role of prices," MPRA Paper 79872, University Library of Munich, Germany.

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    More about this item

    Keywords

    Asymmetric costs; Pricing; Mixed strategies;
    All these keywords.

    JEL classification:

    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance

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