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The durability of information, market efficiency, and the size of firms

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  • Arthur Fishman
  • Rafael Rob

Abstract

The authors analyze a search-theoretic framework in which consumers buy the product repeatedly and firms' costs vary over time. They show the cross-sectional correlation between profits and firm size, the persistence of profits over time, and the role of consumers' immobility in determining firms' profits. In contrast with previous explanations of these phenomena, which are based on differences in inherent productive efficiencies, firms in the authors' model have the same efficiencies but some firms are more successful ex post which affects their subsequent (pricing) behavior and enables them to sustain their privileged position. In particular, large and more profitable firms raise their prices more moderately when their costs increase. Copyright 1995 by Economics Department of the University of Pennsylvania and the Osaka University Institute of Social and Economic Research Association.

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Bibliographic Info

Paper provided by Federal Reserve Bank of Philadelphia in its series Working Papers with number 94-4.

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Date of creation: 1993
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Handle: RePEc:fip:fedpwp:94-4

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Related research

Keywords: Business enterprises ; Prices;

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Cited by:
  1. Alfredo Martín-Oliver & Vicente Salas-Fumás & Jesús Saurina, 2008. "Search cost and price dispersion in vertically related markets: the case of bank loans and deposits," Banco de Espa�a Working Papers 0825, Banco de Espa�a.
  2. Mark J. Roberts & Dylan Supina, 1997. "Output Price and Markup Dispersion in Micro Data: The Roles of Producer Heterogeneity and Noise," NBER Working Papers 6075, National Bureau of Economic Research, Inc.
  3. Amir, Rabah & Wooders, John, 1997. "One-Way Spillovers, Endogenous Innovator/Imitator Roles and Research Joint Ventures," Economics Series 43, Institute for Advanced Studies.
  4. Tse, Chung Yi, 2006. "New product introduction with costly search," Journal of Economic Dynamics and Control, Elsevier, vol. 30(12), pages 2775-2792, December.
  5. Charles Ka-Yui Leung & Youngman Chun Fai Leong & Siu Kei Wong, 2005. "Housing Price Dispersion: An Empirical Investigation," Departmental Working Papers _167, Chinese University of Hong Kong, Department of Economics.
  6. Mark J Roberts & Dylan Supina, 1997. "Output Price And Markup Dispersion In Micro Data: The Roles Of Producer And Heterogeneity And Noise," Working Papers 97-10, Center for Economic Studies, U.S. Census Bureau.
  7. Guido Menzio, 2007. "A Search Theory of Rigid Prices," PIER Working Paper Archive 07-031, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania.
  8. Fishman, Arthur & Rob, Rafael, 2003. "Consumer inertia, firm growth and industry dynamics," Journal of Economic Theory, Elsevier, vol. 109(1), pages 24-38, March.
  9. L. Lambertini & G. Rossini, 2000. "Excess Capacity in Oligopoly with Sequential Entry," Working Papers 384, Dipartimento Scienze Economiche, Universita' di Bologna.
  10. Kováč, Eugen & Schmidt, Robert C., 2014. "Market share dynamics in a duopoly model with word-of-mouth communication," Games and Economic Behavior, Elsevier, vol. 83(C), pages 178-206.
  11. Hong, Pilky & McAfee, R. Preston & Nayyar, Ashish, 2002. "Equilibrium Price Dispersion with Consumer Inventories," Journal of Economic Theory, Elsevier, vol. 105(2), pages 503-517, August.
  12. Alfredo Martín-Oliver & Vicente Salas-Fumás & Jesús Saurina, 2005. "Interest rate dispersion in deposit and loan markets," Banco de Espa�a Working Papers 0506, Banco de Espa�a.
  13. Roller, Lars-Hendrik & Sinclair-Desgagne, Bernard, 1996. "On the heterogeneity of firms," European Economic Review, Elsevier, vol. 40(3-5), pages 531-539, April.
  14. Mariano Tommasi, 1993. "The Consequences of Price Instability on Search Markets," UCLA Economics Working Papers 700, UCLA Department of Economics.

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