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The informational divide

Author

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  • Nermuth, Manfred
  • Pasini, Giacomo
  • Pin, Paolo
  • Weidenholzer, Simon

Abstract

We propose a model of price competition where consumers exogenously differ in the number of prices they compare. Our model can be interpreted either as a non-sequential search model or as a network model of price competition. We show that (i) if consumers who previously just sampled one firm start to compare more prices all types of consumers will expect to pay a lower price and (ii) if consumers who already sampled more than one price sample (even) more prices then there exists a threshold – the informational divide – such that all consumers comparing fewer prices than this threshold will expect to pay a higher price whereas all consumers comparing more prices will expect to pay a lower price than before. Thus increased search can create a negative externality and it is not necessarily beneficial for all consumers.

Suggested Citation

  • Nermuth, Manfred & Pasini, Giacomo & Pin, Paolo & Weidenholzer, Simon, 2013. "The informational divide," Games and Economic Behavior, Elsevier, vol. 78(C), pages 21-30.
    • Handle: RePEc:eee:gamebe:v:78:y:2013:i:c:p:21-30
    DOI: 10.1016/j.geb.2012.10.016
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    Cited by:

    1. Aoyagi, Masaki, 2018. "Bertrand competition under network externalities," Journal of Economic Theory, Elsevier, vol. 178(C), pages 517-550.
    2. repec:hal:spmain:info:hdl:2441/jeo70lroq9p9bmeio80mpgg5h is not listed on IDEAS
    3. Zakaria Babutsidze, 2017. "Duopolistic Price Competition with Captives," Metroeconomica, Wiley Blackwell, vol. 68(4), pages 903-926, November.
    4. Johannes Johnen & David Ronayne, 2021. "The only Dance in Town: Unique Equilibrium in a Generalized Model of Price Competition," Journal of Industrial Economics, Wiley Blackwell, vol. 69(3), pages 595-614, September.
    5. 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.

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    More about this item

    Keywords

    Price dispersion; Welfare effects of search; Price competition on networks; Informational divide;
    All these keywords.

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • D85 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Network Formation
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms

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