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The Stability of Price Dispersion under Seller and Consumer Learning

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  • Ed Hopkins

    ()

  • Robert M Seymour

Abstract

In many markets it is possible to find rival sellers charging different prices for the same good. Earlier research has attempted to explain this phenomenon by demonstrating the existence of dispersed price equilibria when consumers must make use of costly search to discover prices. We ask whether such equilibria can be learnt when sellers adjust proces adaptively in response to current market conditions. With consumer behaviour fixed, convergence to a dispersed porce equilibrium is possible in some cases. However, once consumer learning is introduced, the monopoly outcome first found by Diamond (1971) is the only stable equilibrium.

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Bibliographic Info

Paper provided by Edinburgh School of Economics, University of Edinburgh in its series ESE Discussion Papers with number 52.

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Length: 36
Date of creation: Apr 2004
Date of revision:
Handle: RePEc:edn:esedps:52

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Keywords: Learning; Evolution; Search; Price Dispersion;

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  1. Ed Hopkins, . "Learning, Matching and Aggregation," ELSE working papers 033, ESRC Centre on Economics Learning and Social Evolution.
  2. Young, H Peyton, 1993. "The Evolution of Conventions," Econometrica, Econometric Society, vol. 61(1), pages 57-84, January.
  3. Oechssler, Jörg & Riedel, Frank, 1998. "Evolutionary dynamics on infinite strategy spaces," SFB 373 Discussion Papers 1998,68, Humboldt University of Berlin, Interdisciplinary Research Project 373: Quantification and Simulation of Economic Processes.
  4. Timothy N. Cason & Daniel Friedman, 2000. "Buyer Search and Price Dispersion: A Laboratory Study," Econometric Society World Congress 2000 Contributed Papers 1549, Econometric Society.
  5. Hopkins, Ed, 1999. "A Note on Best Response Dynamics," Games and Economic Behavior, Elsevier, vol. 29(1-2), pages 138-150, October.
  6. Erev, Ido & Roth, Alvin E, 1998. "Predicting How People Play Games: Reinforcement Learning in Experimental Games with Unique, Mixed Strategy Equilibria," American Economic Review, American Economic Association, vol. 88(4), pages 848-81, September.
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