Advanced Search
MyIDEAS: Login to save this paper or follow this series

Price Recall, Bertrand Paradox and Price Dispersion With Elastic Demand


Author Info

  • Carvalho, M.

    (Tilburg University, Center for Economic Research)


This paper studies the consequence of an imprecise recall of the price by the consumers in the Bertrand price competition model for a homogeneous good. It is shown that firms can exploit this weakness and charge prices above the competitive price. This markup increases for rougher recall of the price. If firms have different production costs, those with higher costs are not driven out of the market. However they choose to have a higher price in equilibrium, therefore price dispersion arises. It is shown that firms behave on average as a monopolist with stricter demand and that price dispersion increases with the price recall errors. If bigger recall errors happen, then both consumers and firms on the aggregate level are worse off, for some parameter choices. Furthermore being given the irrational choice that some consumers make, there are situations where the protection of a monopolist against entrants is a welfare maximizing policy. The introduction of more firms in the market does not have a significant impact on the prices. Even though the presented model is static, it can be interpreted as a stage game of an infinitely repeated game where a Nash Equilibrium is played in every stage. The intuition is that consumers do not actually seek information before every purchase, but have a vague idea of the price they faced in previous purchases.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL:
Our checks indicate that this address may not be valid because: 404 Not Found. If this is indeed the case, please notify (Richard Broekman)
Download Restriction: no

Bibliographic Info

Paper provided by Tilburg University, Center for Economic Research in its series Discussion Paper with number 2009-69.

as in new window
Date of creation: 2009
Date of revision:
Handle: RePEc:dgr:kubcen:200969

Contact details of provider:
Web page:

Related research

Keywords: Behavioral Industrial Organization; Bounded Rationality; Price Recall; Price Dispersion; Bertrand Paradox;

Find related papers by JEL classification:


No references listed on IDEAS
You can help add them by filling out this form.



This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.


Access and download statistics


When requesting a correction, please mention this item's handle: RePEc:dgr:kubcen:200969. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Richard Broekman).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.