The informational divide
AbstractWe 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.
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Bibliographic InfoArticle provided by Elsevier in its journal Games and Economic Behavior.
Volume (Year): 78 (2013)
Issue (Month): C ()
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Web page: http://www.elsevier.com/locate/inca/622836
Price dispersion; Welfare effects of search; Price competition on networks; Informational divide;
Other versions of this item:
- Manfred Nermuth & Giacomo Pasini & Paolo Pin & Simon Weidenholzer, 2009. "Price Dispersion, Search Externalities, and the Digital Divide," Vienna Economics Papers 0916, University of Vienna, Department of Economics.
- D43 - Microeconomics - - Market Structure and Pricing - - - 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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