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 InfoPaper provided by Economics and Finance Section, School of Social Sciences, Brunel University in its series Economics and Finance Discussion Papers with number 97-03.
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Postal: Brunel University, Uxbridge, Middlesex UB8 3PH, UK
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- Michael T. Rauh, 2001. "Heterogeneous beliefs, price dispersion, and welfare-improving price controls," Economic Theory, Springer, vol. 18(3), pages 577-603.
- 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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