This file is part of IDEAS, which uses RePEc data


[ Papers | Articles | Software | Books | Chapters | Authors | Institutions | JEL Classification | NEP reports | Search | New papers by email | Author registration | Rankings | Volunteers | FAQ | Blog | Help! ]

Equilibrium Price Dispersion with Sequential Search

Author info | Abstract | Publisher info | Download info | Related research | Statistics
Author Info
J. Rupert Gatti (Trinity College)
Abstract

Diamond (1971) showed that in a market where consumers search sequentially and have strictly positive search costs the unique price equilibrium is where all firms charge the monopoly price. This paper demonstrates that Diamond's result depends crucially on the assumption of single commodity search and does not persist when the model is generalised to allow multi-commodity search. A model is presented where identical consumers search optimally (sequentially) and with positive search costs for two commodities. Firms supply only one of the commodity types so consumers are required to sample at least two firms to satisfy their consumption requirements. Within industries firms are identical, producing a homogenous product at the same, constant, marginal cost. The equilibrium is shown to display price dispersion, in fact no two firms charge the same price with positive probability. Comparative statics are conducted and it is demonstrated that the price dispersion depends solely on the search behaviour of consumers, converging to the competitive price as search costs converge to zero. Changes in industry demand effect equilibrium prices only through the indirect impact the change in demand has on the consumers search behaviour.

Download Info
To download:

If you experience problems downloading a file, check if you have the proper application to view it first. Information about this may be contained in the File-Format links below. 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: http://fmwww.bc.edu/RePEc/es2000/1368.pdf
File Format: application/pdf
File Function: main text
Download Restriction: no

Publisher Info
Paper provided by Econometric Society in its series Econometric Society World Congress 2000 Contributed Papers with number 1368.

Download reference. The following formats are available: HTML (with abstract), plain text (with abstract), BibTeX, RIS (EndNote, RefMan, ProCite), ReDIF
Length:
Date of creation: 01 Aug 2000
Date of revision:
Handle: RePEc:ecm:wc2000:1368

Contact details of provider:
Phone: 1 212 998 3820
Fax: 1 212 995 4487
Email:
Web page: http://www.econometricsociety.org/pastmeetings.asp
More information through EDIRC

For technical questions regarding this item, or to correct its listing, contact: (Christopher F. Baum).

Related research
Keywords:

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

  1. Axel, Bo, 1977. " Search Market Equilibrium," Scandinavian Journal of Economics, Blackwell Publishing, vol. 79(1), pages 20-40.
  2. Benabou Roland, 1993. "Search Market Equilibrium, Bilateral Heterogeneity, and Repeat Purchases," Journal of Economic Theory, Elsevier, vol. 60(1), pages 140-158, June. [Downloadable!] (restricted)
    Other versions:
  3. Pratt, John W & Wise, David A & Zeckhauser, Richard, 1979. "Price Differences in Almost Competitive Markets," The Quarterly Journal of Economics, MIT Press, vol. 93(2), pages 189-211, May. [Downloadable!] (restricted)
  4. Albrecht, James W & Axell, Bo & Lang, Harald, 1986. "General Equilibrium Wage and Price Distributions," The Quarterly Journal of Economics, MIT Press, vol. 101(4), pages 687-706, November. [Downloadable!] (restricted)
  5. Burdett, Kenneth & Judd, Kenneth L, 1983. "Equilibrium Price Dispersion," Econometrica, Econometric Society, vol. 51(4), pages 955-69, July. [Downloadable!] (restricted)
  6. Dahlby, Bev & West, Douglas S, 1986. "Price Dispersion in an Automobile Insurance Market," Journal of Political Economy, University of Chicago Press, vol. 94(2), pages 418-38, April. [Downloadable!] (restricted)
  7. MacMinn, Richard D, 1980. "Search and Market Equilibrium," Journal of Political Economy, University of Chicago Press, vol. 88(2), pages 308-27, April. [Downloadable!] (restricted)
  8. Stahl, Dale O., 1996. "Oligopolistic pricing with heterogeneous consumer search," International Journal of Industrial Organization, Elsevier, vol. 14(2), pages 243-268. [Downloadable!] (restricted)
  9. Diamond, Peter, 1987. "Consumer Differences and Prices in a Search Model," The Quarterly Journal of Economics, MIT Press, vol. 102(2), pages 429-36, May. [Downloadable!] (restricted)
    Other versions:
  10. Carlson, John A & McAfee, R Preston, 1983. "Discrete Equilibrium Price Dispersion," Journal of Political Economy, University of Chicago Press, vol. 91(3), pages 480-93, June. [Downloadable!] (restricted)
  11. Diamond, Peter A., 1971. "A model of price adjustment," Journal of Economic Theory, Elsevier, vol. 3(2), pages 156-168, June. [Downloadable!] (restricted)
  12. Stahl, Dale O, II, 1989. "Oligopolistic Pricing with Sequential Consumer Search," American Economic Review, American Economic Association, vol. 79(4), pages 700-712, September. [Downloadable!] (restricted)
  13. Gatti, J. Rupert J., 1999. "Multi-Commodity Consumer Search," Journal of Economic Theory, Elsevier, vol. 86(2), pages 219-244, June. [Downloadable!] (restricted)
  14. Burdett, Kenneth & Malueg, David A., 1981. "The theory of search for several goods," Journal of Economic Theory, Elsevier, vol. 24(3), pages 362-376, June. [Downloadable!] (restricted)
Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Sun, Ching-jen, 2005. "Dynamic Price Dispersion in a Bertrand-Edgeworth Model," MPRA Paper 9854, University Library of Munich, Germany, revised Dec 2007. [Downloadable!]
  2. Michael R. Baye & John Morgan & Patrick Scholten, 2006. "Persistent Price Dispersion in Online Markets," Working Papers 2006-12, Indiana University, Kelley School of Business, Department of Business Economics and Public Policy. [Downloadable!]
  3. Saul Lach, 2002. "Existence and Persistence of Price Dispersion: an Empirical Analysis," NBER Working Papers 8737, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  4. Michael R. Baye & John Morgan, 2004. "Price Dispersion in the Lab and on the Internet: Theory and Evidence," Working Papers 2004-02, Indiana University, Kelley School of Business, Department of Business Economics and Public Policy. [Downloadable!]
    Other versions:
Statistics
Access and download statistics

Did you know? You can include your works in the database easily by uploading them on the Munich Personal RePEc Archive (MPRA) if you do not have access to an institutional RePEc archive.

This page was last updated on 2009-11-6.

This information is provided to you by IDEAS at the Department of Economics, College of Liberal Arts and Sciences, University of Connecticut using RePEc data on a server sponsored by the Society for Economic Dynamics.