Price Dispersion: An Evolutionary Approach

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Price Dispersion: An Evolutionary Approach

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Ed Hopkins ()

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Ed Hopkins

Abstract

In many markets it is possible to find rival sellers charging different prices for the same good. Earlier research has explained this phenomenon by demonstrating the existence of dispersed price equilibria when consumers must make use of costly search to discover prices. Taking as a starting point the model of Burdett and Judd (Econometrica, 1983), this paper, extending evolutionary techniques to a game with non-linear payoffs and a continuum of strategies, re-examines the question of price dispersion from an evolutionary, disequilibrium perspective. That is, firms and consumers adjust behaviour adaptively in response to current market conditions. We find that dispersed price equilibria are unstable when consumers use a fixed sample size search rule but may be stable when a reservation price rule is used.

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Paper provided by Edinburgh School of Economics, University of Edinburgh in its series ESE Discussion Papers with number 1.

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Handle: RePEc:edn:esedps:1

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Paper
- Ed Hopkins & Robert M. Seymour, . "Price Dispersion: an Evolutionary Approach," ELSE working papers 043, ESRC Centre on Economics Learning and Social Evolution. [Downloadable!]
- Ed Hopkins, . "Price Dispersion: An Evolutionary Approach," Department of Economics 1996 : III, Edinburgh School of Economics, University of Edinburgh. [Downloadable!]
- Ed Hopkins, . "Price Dispersion: An Evolutionary Approach," Discussion Papers 1996-3, Edinburgh School of Economics, University of Edinburgh.

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.:

Rothschild, Michael, 1974. "Searching for the Lowest Price When the Distribution of Prices Is Unknown," Journal of Political Economy, University of Chicago Press, vol. 82(4), pages 689-711, July/Aug.. [Downloadable!] (restricted)
Wilde, Louis L & Schwartz, Alan, 1979. "Equilibrium Comparison Shopping," Review of Economic Studies, Blackwell Publishing, vol. 46(3), pages 543-53, July. [Downloadable!] (restricted)
Other versions:
- Wilde, Louis L. & Schwartz, Alan., . "Equilibrium Comparison Shopping," Working Papers 184, California Institute of Technology, Division of the Humanities and Social Sciences. [Downloadable!]
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:
- Benabou, Roland, 1988. "Search market equilibrium bilateral heterogeneity and repeat purchases," CEPREMAP Working Papers (Couverture Orange) 8806, CEPREMAP.
Ed Hopkins, 1995. "Learning, Matching and Aggregation," Game Theory and Information 9512001, EconWPA. [Downloadable!]
Other versions:
- Ed Hopkins, . "Learning, Matching and Aggregation," Department of Economics 1996 : II, Edinburgh School of Economics, University of Edinburgh. [Downloadable!]
- Ed Hopkins, . "Learning, Matching and Aggregation," ESE Discussion Papers 2, Edinburgh School of Economics, University of Edinburgh.
- Ed Hopkins, . "Learning, Matching and Aggregation," ELSE working papers 033, ESRC Centre on Economics Learning and Social Evolution. [Downloadable!]
- Ed Hopkins, . "Learning, Matching and Aggregation," Discussion Papers 1996-2, Edinburgh School of Economics, University of Edinburgh.
- Hopkins, E., 1995. "Learning, Matching and Aggregation," G.R.E.Q.A.M. 95a20, Universite Aix-Marseille III.
- Hopkins, Ed, 1999. "Learning, Matching, and Aggregation," Games and Economic Behavior, Elsevier, vol. 26(1), pages 79-110, January. [Downloadable!] (restricted)
Rothschild, Michael, 1973. "Models of Market Organization with Imperfect Information: A Survey," Journal of Political Economy, University of Chicago Press, vol. 81(6), pages 1283-1308, Nov.-Dec.. [Downloadable!] (restricted)
Burdett, Kenneth & Judd, Kenneth L, 1983. "Equilibrium Price Dispersion," Econometrica, Econometric Society, vol. 51(4), pages 955-69, July. [Downloadable!] (restricted)
Kandori, Michihiro & Mailath, George J & Rob, Rafael, 1993. "Learning, Mutation, and Long Run Equilibria in Games," Econometrica, Econometric Society, vol. 61(1), pages 29-56, January. [Downloadable!] (restricted)
Other versions:
- Kandori, M. & Mailath, G.J., 1991. "Learning, Mutation, And Long Run Equilibria In Games," Papers 71, Princeton, Woodrow Wilson School - John M. Olin Program.
Salop, Steven & Stiglitz, Joseph E, 1977. "Bargains and Ripoffs: A Model of Monopolistically Competitive Price Dispersion," Review of Economic Studies, Blackwell Publishing, vol. 44(3), pages 493-510, October. [Downloadable!] (restricted)
Other versions:
- Steven Salop & Joseph Stiglitz, 1977. "Bargains and ripoffs: a model of monopolistically competitive price dispersion," Special Studies Papers 94, Board of Governors of the Federal Reserve System (U.S.).
Gastwirth, Joseph L, 1976. "On Probabilistic Models of Consumer Search for Information," The Quarterly Journal of Economics, MIT Press, vol. 90(1), pages 38-50, February. [Downloadable!] (restricted)
Harrison, Glenn W & Morgan, Peter, 1990. "Search Intensity in Experiments," Economic Journal, Royal Economic Society, vol. 100(401), pages 478-86, June. [Downloadable!] (restricted)
Fershtman, Chaim & Fishman, Arthur, 1992. "Price Cycles and Booms: Dynamic Search Equilibrium," American Economic Review, American Economic Association, vol. 82(5), pages 1221-33, December. [Downloadable!] (restricted)
Other versions:
- Fershtman, C. & Fishman, A., 1989. "Price Cycles And Booms Dynamic Search Equilibrium," Papers 8922, Tilburg - Center for Economic Research.
- Fershtman, C. & Fishman, A., 1989. "Price Cycles And Booms: Dynamic Search Equilibrium," Papers 1-89, Tel Aviv.
Varian, Hal R, 1980. "A Model of Sales," American Economic Review, American Economic Association, vol. 70(4), pages 651-59, September. [Downloadable!] (restricted)
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)
Wilde, Louis L, 1992. "Comparison Shopping as a Simultaneous Move Game," Economic Journal, Royal Economic Society, vol. 102(412), pages 562-69, May. [Downloadable!] (restricted)
Fudenberg Drew & Kreps David M., 1993. "Learning Mixed Equilibria," Games and Economic Behavior, Elsevier, vol. 5(3), pages 320-367, July. [Downloadable!] (restricted)
Other versions:
- Fudenberg, D. & Kreps, D.M., 1992. "Learning Mixed Equilibria," Working papers 92-13, Massachusetts Institute of Technology (MIT), Department of Economics.
Nachbar, J H, 1990. ""Evolutionary" Selection Dynamics in Games: Convergence and Limit Properties," International Journal of Game Theory, Springer, vol. 19(1), pages 59-89.
Morgan, Peter & Manning, Richard, 1985. "Optimal Search," Econometrica, Econometric Society, vol. 53(4), pages 923-44, July. [Downloadable!] (restricted)
Bester, Helmut, 1988. "Bargaining, Search Costs and Equilibrium Price Distributions," Review of Economic Studies, Blackwell Publishing, vol. 55(2), pages 201-14, April. [Downloadable!] (restricted)
Other versions:
- Bester,Helmut, 1986. "Bargaining,Search costs and equilibrium price distribution," Discussion Paper Serie A 49, University of Bonn, Germany.
Diamond, Peter A., 1971. "A model of price adjustment," Journal of Economic Theory, Elsevier, vol. 3(2), pages 156-168, June. [Downloadable!] (restricted)
George J. Stigler, 1961. "The Economics of Information," Journal of Political Economy, University of Chicago Press, vol. 69, pages 213. [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.)

Joerg Oechssler & Frank Riedel, 1998. "Evolutionary Dynamics on Infinite Strategy Spaces," Game Theory and Information 9805002, EconWPA, revised 12 May 1998. [Downloadable!]
Other versions:
- J. Oechssler & F. Riedel, . "Evolutionary Dynamics on Infinite Strategy Spaces," Sonderforschungsbereich 373 1998-68, Humboldt Universitaet Berlin.
- Oechssler, Joerg & Frank Riedel, 1999. "Evolutionary Dynamics on Infinite Strategy Spaces," Discussion Paper Serie A 606, University of Bonn, Germany. [Downloadable!]

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