Oligoply Pricing: the Effects of Search Cost Structure & Heterogeneity
AbstractIt has been shown that if buyers have zero search cost and the remainder a common positive search cost, and sellers post prices, then there is a unique symmetric Nash equilibrium-sellers choose a price distribution. We show that increasing the number of search cost types results in another equilibrium, having the more realistic property that some buyers search some, but not all, sellers. It is also possible that no equilibrium exists. As the number of finite types becomes large, the equilibrium converges to the competitive price. However, if there is a continuum of types, monopoly pricing occurs. Generalizing the search environment to allow buyers to purchase price information before visiting sellers results in non-existence of an equilibrium if the cost of obtaining the information is sufficiently low. If not, then many of the above properties of equilibrium continue to hold. Price distributions are found to exist in an even wider class of settings if buyers can obtain price information before visiting sellers.
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Bibliographic InfoPaper provided by The University of Melbourne in its series Department of Economics - Working Papers Series with number 727.
Length: 23 pages
Date of creation: 1999
Date of revision:
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Postal: Department of Economics, The University of Melbourne, 5th Floor, Economics and Commerce Building, Victoria, 3010, Australia
Phone: +61 3 8344 5289
Fax: +61 3 8344 6899
Web page: http://www.economics.unimelb.edu.au
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OLIGOPOLIES ; PRICES ; MARKET STRUCTURE ; GAME THEORY;
Find related papers by JEL classification:
- C78 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Bargaining Theory; Matching Theory
- D40 - Microeconomics - - Market Structure and Pricing - - - General
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