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Poisson Price Dispersion

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Author Info
Halevy, Yoram
Michtaich, Igal

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Abstract

We study a competitive market for a homogeneous good, in which the only uncertainty concerns the number of identical sellers, who are sampled by a finite Poisson process from a continuum of potential participants. It is shown that, in equilibrium, there is price dispersion. Specifically, prices conform to a Poisson process on an interval, which is a proper subset of that between the sellers' cost and the buyers' reservation price. Although prices arbitrarily close to the latter may occur in equilibrium, they are less frequent than prices at the lower end of the pricing interval.

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Publisher Info
Paper provided by Microeconomics.ca Website in its series Micro Theory Working Papers with number halevy-05-07-26-12-10-45.

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Length: 21 pages
Date of creation: 26 Jul 2005
Date of revision: 08 Jun 2008
Handle: RePEc:ubc:pmicro:halevy-05-07-26-12-10-45

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Related research
Keywords: Random-player games; Poisson games; Uncertain number of sellers; Directed search.;

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Find related papers by JEL classification:
C7 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory
D4 - Microeconomics - - Market Structure and Pricing
D8 - Microeconomics - - Information, Knowledge, and Uncertainty
L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance

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  9. Michael Peters & Ralph A. Winter, 1983. "Market Equilibrium and the Resolution of Uncertainty," Canadian Journal of Economics, Canadian Economics Association, vol. 16(3), pages 381-90, August. [Downloadable!] (restricted)
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  12. Coles, Melvyn G. & Eeckhout, Jan, 2003. "Indeterminacy and directed search," Journal of Economic Theory, Elsevier, vol. 111(2), pages 265-276, August. [Downloadable!] (restricted)
  13. Harstad, Ronald M. & Kagel, John H. & Levin, Dan, 1990. "Equilibrium bid functions for auctions with an uncertain number of bidders," Economics Letters, Elsevier, vol. 33(1), pages 35-40, May. [Downloadable!] (restricted)
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