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Dynamic Price Dispersion in a Bertrand-Edgeworth Model

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Sun, Ching-jen

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Abstract

This paper considers a dynamic model of price competition in which sellers are endowed with one unit of the good and compete by posting prices in every period. Buyers each demand one unit of the good and have a common reservation price. They have full information regarding the prices posted by each firm in the market; hence, search is costless. The number of buyers coming to the market in each period is random. We characterize the dynamics of market prices and show that price dispersion persists over time.

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File URL: http://mpra.ub.uni-muenchen.de/9854/
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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 9854.

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Date of creation: Oct 2005
Date of revision: Dec 2007
Handle: RePEc:pra:mprapa:9854

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Related research
Keywords: Price Dispersion Search Cost Bertrand-Edgeworth Model

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Find related papers by JEL classification:
L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
D43 - Microeconomics - - Market Structure and Pricing - - - Oligopoly and Other Forms of Market Imperfection

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  1. 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:
  2. Jeffrey Milyo & Joel Waldfogel, 1999. "The Effect of Price Advertising on Prices: Evidence in the Wake of 44 Liquormart," American Economic Review, American Economic Association, vol. 89(5), pages 1081-1096, December. [Downloadable!] (restricted)
    Other versions:
  3. Burdett, Kenneth & Judd, Kenneth L, 1983. "Equilibrium Price Dispersion," Econometrica, Econometric Society, vol. 51(4), pages 955-69, July. [Downloadable!] (restricted)
  4. Reinganum, Jennifer F, 1979. "A Simple Model of Equilibrium Price Dispersion," Journal of Political Economy, University of Chicago Press, vol. 87(4), pages 851-58, August. [Downloadable!] (restricted)
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  5. Arnold, Michael A, 2000. "Costly Search, Capacity Constraints, and Bertrand Equilibrium Price Dispersion," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 41(1), pages 117-31, February.
  6. Varian, Hal R, 1980. "A Model of Sales," American Economic Review, American Economic Association, vol. 70(4), pages 651-59, September. [Downloadable!] (restricted)
  7. Rosenthal, Robert W, 1980. "A Model in Which an Increase in the Number of Sellers Leads to a Higher Price," Econometrica, Econometric Society, vol. 48(6), pages 1575-79, September. [Downloadable!] (restricted)
  8. J. Rupert Gatti, 2000. "Equilibrium Price Dispersion with Sequential Search," Econometric Society World Congress 2000 Contributed Papers 1368, Econometric Society. [Downloadable!]
  9. Prescott, Edward C, 1975. "Efficiency of the Natural Rate," Journal of Political Economy, University of Chicago Press, vol. 83(6), pages 1229-36, December. [Downloadable!] (restricted)
  10. George J. Stigler, 1961. "The Economics of Information," Journal of Political Economy, University of Chicago Press, vol. 69, pages 213. [Downloadable!] (restricted)
  11. Maarten C. W. Janssen & José Luis Moraga-González, 2004. "Strategic Pricing, Consumer Search and the Number of Firms," Review of Economic Studies, Blackwell Publishing, vol. 71(4), pages 1089-1118, October. [Downloadable!] (restricted)
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