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Equilibrium price dispersion with heterogeneous searchers

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  • Chen, Yongmin
  • Zhang, Tianle

Abstract

Firms simultaneously set prices in a homogeneous-product market where uninformed consumers search for price information. Some uninformed consumers are “local” searchers who visit only one seller, whereas others search sequentially with an optimal reservation price. Equilibrium prices may follow a mixture distribution, with clusters of high and low prices separated by a zero-density gap. When the (exogenous) reservation price of local searchers depart from that of the optimizing sequential searchers by a relatively small amount, the presence of local searchers either has no effect on market outcomes or benefits all consumers. A reduction in search cost sometimes leads to higher equilibrium prices.

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Bibliographic Info

Article provided by Elsevier in its journal International Journal of Industrial Organization.

Volume (Year): 29 (2011)
Issue (Month): 6 ()
Pages: 645-654

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Handle: RePEc:eee:indorg:v:29:y:2011:i:6:p:645-654

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Web page: http://www.elsevier.com/locate/inca/505551

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Keywords: Price dispersion; Search; Search cost; Bounded rationality;

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References

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Cited by:
  1. Dmitry Ryvkin & Danila Serra, 2013. "Does Competition Among Public Officials Reduce Corruption? An Experiment," Departmental Working Papers 1301, Southern Methodist University, Department of Economics.
  2. Anania, Giovanni & Nisticò, Rosanna, 2014. "Price dispersion and seller heterogeneity in retail food markets," Food Policy, Elsevier, vol. 44(C), pages 190-201.
  3. Mathur, Sameer & Sinitsyn, Maxim, 2013. "Price promotions in emerging markets," International Journal of Industrial Organization, Elsevier, vol. 31(5), pages 404-416.

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