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Search with Learning and Price Adjustment Dynamics

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  • Fishman, Arthur

Abstract

The author presents a model of consumer search with learning in which cost shocks have different short- and long-range effects on prices. In the short run, consumers confuse general cost shocks, common to all firms in the industry, with firm-specific shocks. In the case of a general cost increase, this promotes an excessive propensity to search, restraining the amount by which prices increase in the short run. Conversely, in the case of an idiosyncratic cost increase, consumers search too little, causing the prices of high-cost firms to overshoot. Copyright 1996, the President and Fellows of Harvard College and the Massachusetts Institute of Technology.

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Bibliographic Info

Article provided by MIT Press in its journal Quarterly Journal of Economics.

Volume (Year): 111 (1996)
Issue (Month): 1 (February)
Pages: 253-68

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Handle: RePEc:tpr:qjecon:v:111:y:1996:i:1:p:253-68

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Web page: http://mitpress.mit.edu/journals/

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Cited by:
  1. Cabral, Luís & Fishman, Arthur, 2012. "Business as usual: A consumer search theory of sticky prices and asymmetric price adjustment," International Journal of Industrial Organization, Elsevier, vol. 30(4), pages 371-376.
  2. Fishman, Arthur & Finkelshtain, Israel & Simhon, Avi & Yacouel, Nira, 2008. "The Economics of Collective Brands," Discussion Papers 46056, Hebrew University of Jerusalem, Department of Agricultural Economics and Management.
  3. Tack Yun & Andrew Levin, 2011. "Reconsidering the Microeconomic Foundations of Price-Setting Behavior," 2011 Meeting Papers 424, Society for Economic Dynamics.
  4. Maarten Janssen & Paul Pichler & Simon Weidenholzer, 2009. "Sequential Search with Incompletely Informed Consumers: Theory and Evidence from Retail Gasoline Markets," Vienna Economics Papers 0914, University of Vienna, Department of Economics.
  5. Fishman, Arthur & Simhon, Avi, 2005. "Can small menu costs explain sticky prices?," Economics Letters, Elsevier, vol. 87(2), pages 227-230, May.
  6. Michael Rauh, . "A Model of Temporary Search Market Equilibrium," Economics and Finance Discussion Papers 97-08, Economics and Finance Section, School of Social Sciences, Brunel University.
  7. Joshua Sherman & Avi Weiss, 2012. "Price Response, Asymmetric Information, and Competition," Working Papers 2012-13, Department of Economics, Bar-Ilan University.
  8. Maarten Janssen & Alexei Parakhonyak & Anastasia Parakhonyak, 2014. "Non-reservation price equilibria and Consumer search," HSE Working papers WP BRP 51/EC/2014, National Research University Higher School of Economics.

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