On Polarized Prices and Costly Sequential Search
AbstractThis paper presents a homogenous goods duopoly model of costly sequential consumer search with three classes of consumers: costless searchers; moderately costly searchers; and consumers for whom search costs are extremely high--higher than the value they attach to the good. Under certain conditions, the mixed-strategy Nash equilibrium price distribution is one where low and high, but never moderate, prices are charged. In equilibrium, free searchers will always search for both prices, very costly searchers never will, and moderately costly searchers will engage in actual search with positive probability. Interestingly, the existence of consumers who do not themselves search for prices allows for the introduction of an equilibrium where costly search does occur.
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Bibliographic InfoPaper provided by Southern Methodist University, Department of Economics in its series Departmental Working Papers with number 0907.
Date of creation: Nov 2009
Date of revision:
Contact details of provider:
Postal: Department of Economics, P.O. Box 750496, Southern Methodist University, Dallas, TX 75275-0496
Web page: http://www.smu.edu/economics
Some; Sequential search; pricing; duopoly.;
Find related papers by JEL classification:
- D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search, Learning, and Information
- D43 - Microeconomics - - Market Structure and Pricing - - - Oligopoly and Other Forms of Market Imperfection
- L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
- L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
This paper has been announced in the following NEP Reports:
- NEP-ALL-2009-11-27 (All new papers)
- NEP-COM-2009-11-27 (Industrial Competition)
- NEP-MIC-2009-11-27 (Microeconomics)
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