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The informational divide

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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.

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Bibliographic Info

Article provided by Elsevier in its journal Games and Economic Behavior.

Volume (Year): 78 (2013)
Issue (Month): C ()
Pages: 21-30

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Handle: RePEc:eee:gamebe:v:78:y:2013:i:c:p:21-30

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Web page: http://www.elsevier.com/locate/inca/622836

Related research

Keywords: Price dispersion; Welfare effects of search; Price competition on networks; Informational divide;

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References

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  1. Andrea Galeotti & Sanjeev Goyal & Matthew O. Jackson & Fernando Vega-Redondo & Leeat Yariv, 2010. "Network Games," Review of Economic Studies, Oxford University Press, vol. 77(1), pages 218-244.
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  12. Andrea Galeotti, 2010. "Talking, Searching, And Pricing," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 51(4), pages 1159-1174, November.
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