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The Durability of Information, Market Efficiency and the Size of Firms

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Author Info
Fishman, Arthur
Rob, Rafael

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Abstract

The authors analyze a search-theoretic framework in which consumers buy the product repeatedly and firms' costs vary over time. They show the cross-sectional correlation between profits and firm size, the persistence of profits over time, and the role of consumers' immobility in determining firms' profits. In contrast with previous explanations of these phenomena, which are based on differences in inherent productive efficiencies, firms in the authors' model have the same efficiencies but some firms are more successful ex post which affects their subsequent (pricing) behavior and enables them to sustain their privileged position. In particular, large and more profitable firms raise their prices more moderately when their costs increase. Copyright 1995 by Economics Department of the University of Pennsylvania and the Osaka University Institute of Social and Economic Research Association.

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Publisher Info
Article provided by Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association in its journal International Economic Review.

Volume (Year): 36 (1995)
Issue (Month): 1 (February)
Pages: 19-36
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Handle: RePEc:ier:iecrev:v:36:y:1995:i:1:p:19-36

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  1. repec:bep:eapadv:v:2:y:2002:i:1:p:1020-1020 is not listed on IDEAS
  2. Mariano Tommasi, 1993. "The Consequences of Price Instability on Search Markets," UCLA Economics Working Papers 700, UCLA Department of Economics. [Downloadable!]
  3. Alfredo Martín-Oliver & Vicente Salas-Fumás & Jesús Saurina, 2005. "Interest rate dispersion in deposit and loan markets," Banco de España Working Papers 0506, Banco de España. [Downloadable!]
  4. Alfredo Martín-Oliver & Vicente Salas-Fumás & Jesús Saurina, 2008. "Search cost and price dispersion in vertically related markets: the case of bank loans and deposits," Banco de España Working Papers 0825, Banco de España. [Downloadable!]
  5. Amir, Rabah & Wooders, John, 1997. "One-Way Spillovers, Endogenous Innovator/Imitator Roles and Research Joint Ventures," Economics Series 43, Institute for Advanced Studies. [Downloadable!]
    Other versions:
  6. Mark J. Roberts & Dylan Supina, 1997. "Output Price and Markup Dispersion in Micro Data: The Roles of Producer Heterogeneity and Noise," NBER Working Papers 6075, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  7. Pedro Pereira, 2004. "Some implications of search and switching costs for the price dynamics of electronic markets," International Journal of the Economics of Business, Taylor and Francis Journals, vol. 11(3), pages 303-327, November. [Downloadable!] (restricted)
  8. Guido Menzio, 2007. "A Search Theory of Rigid Prices," PIER Working Paper Archive 07-031, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania. [Downloadable!]
  9. Mark J Roberts & Dylan Supina, 1997. "Output Price And Markup Dispersion In Micro Data: The Roles Of Producer And Heterogeneity And Noise," Working Papers 97-10, Center for Economic Studies, U.S. Census Bureau. [Downloadable!]
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