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Can price dispersion be supported solely by information frictions?

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  • José Tudón

    (ITAM)

Abstract

Even with identical consumers and identical firms, if firms set prices in a first stage, and if consumers search sequentially in a second stage, price dispersion arises in the form of a mixed-strategy Nash equilibrium. One only needs to assume consumers know the realized price distribution and that they do not know which firm has what price. In contrast to Burdett and Judd (1983), price quotes are not required to be “noisy.” Moreover, actual search is predicted to be nontrivial.

Suggested Citation

  • José Tudón, 2021. "Can price dispersion be supported solely by information frictions?," Economic Theory Bulletin, Springer;Society for the Advancement of Economic Theory (SAET), vol. 9(1), pages 75-90, April.
    • Handle: RePEc:spr:etbull:v:9:y:2021:i:1:d:10.1007_s40505-020-00196-3
    DOI: 10.1007/s40505-020-00196-3
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