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Dynamic Price Dispersion in a Bertrand-Edgeworth Model

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  • Sun, Ching-jen

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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Bibliographic Info

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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Keywords: Price Dispersion; Search Cost; Bertrand-Edgeworth Model;

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  1. Maarten C. W. Janssen & José Luis Moraga-González, 2004. "Strategic Pricing, Consumer Search and the Number of Firms," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 71(4), pages 1089-1118, October.
  2. Jennifer F. Reinganum, 1978. "A Simple Model of Equilibrium Price Dispersion," Discussion Papers, Northwestern University, Center for Mathematical Studies in Economics and Management Science 335, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  3. Michael Smith & Erik Brynjolfsson, 1999. "Frictionless Commerce? A Comparison of Internet and Conventional Retailers," Computing in Economics and Finance 1999, Society for Computational Economics 1022, Society for Computational Economics.
  4. Prescott, Edward C, 1975. "Efficiency of the Natural Rate," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 83(6), pages 1229-36, December.
  5. J. Rupert Gatti, 2000. "Equilibrium Price Dispersion with Sequential Search," Econometric Society World Congress 2000 Contributed Papers 1368, Econometric Society.
  6. Jeffrey Milyo & Joel Waldfogel, 1998. "The Effect of Price Advertising on Prices: Evidence in the Wake of 44 Liquormart," Discussion Papers Series, Department of Economics, Tufts University, Department of Economics, Tufts University 9807, Department of Economics, Tufts University.
  7. Varian, Hal R, 1980. "A Model of Sales," American Economic Review, American Economic Association, American Economic Association, vol. 70(4), pages 651-59, September.
  8. Michael R. Baye & John Morgan, 2004. "Price Dispersion in the Lab and on the Internet: Theory and Evidence," RAND Journal of Economics, The RAND Corporation, vol. 35(3), pages 448-466, Autumn.
  9. Burdett, Kenneth & Judd, Kenneth L, 1983. "Equilibrium Price Dispersion," Econometrica, Econometric Society, Econometric Society, vol. 51(4), pages 955-69, July.
  10. George J. Stigler, 1961. "The Economics of Information," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 69, pages 213.
  11. 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, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 41(1), pages 117-31, February.
  12. Rosenthal, Robert W, 1980. "A Model in Which an Increase in the Number of Sellers Leads to a Higher Price," Econometrica, Econometric Society, Econometric Society, vol. 48(6), pages 1575-79, September.
  13. Maarten C. W. Janssen & José Luis Moraga-Gonz�lez, 2004. "Strategic Pricing, Consumer Search and the Number of Firms," Review of Economic Studies, Oxford University Press, vol. 71(4), pages 1089-1118.
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