Heterogeneous beliefs, price dispersion, and welfare-improving price controls
AbstractWe consider a search market model where agents have heterogeneous beliefs about the distribution of prices. A suggestive example shows that Jevon's Law of One Price and standard welfare results are not robust to small heterogeneous errors in beliefs. In particular we show that a price ceiling above marginal cost can reduce price dispersion and improve welfare (by lowering aggregate search costs) without decreasing quantity supplied. These results are broadly consistent with the empirical evidence.
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Bibliographic InfoArticle provided by Springer in its journal Economic Theory.
Volume (Year): 18 (2001)
Issue (Month): 3 ()
Note: Received: July 27, 1999; revised version: May 24, 2000
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Other versions of this item:
- Michael Rauh, . "Heterogeneous Beliefs, Price Dispersion, and Welfare-Improving Price Controls," Economics and Finance Discussion Papers 97-03, Economics and Finance Section, School of Social Sciences, Brunel University.
- D43 - Microeconomics - - Market Structure and Pricing - - - Oligopoly and Other Forms of Market Imperfection
- D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search, Learning, and Information
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- Charles Ka Yui Leung & Jun Zhang, 2011. "¡§Fire Sales¡¨ in Housing Market: Is the House- Search Process Similar to a Theme Park Visit?," International Real Estate Review, Asian Real Estate Society, vol. 14(3), pages 311-329.
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