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Poisson Price Dispersion

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  • Halevy, Yoram
  • Michtaich, Igal

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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Bibliographic Info

Paper provided by Vancouver School of Economics in its series Microeconomics.ca 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: 25 Feb 2014
Handle: RePEc:ubc:pmicro:halevy-05-07-26-12-10-45

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Web page: http://www.economics.ubc.ca/

Related research

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

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  1. 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.
  2. Burdett, Kenneth & Judd, Kenneth L, 1983. "Equilibrium Price Dispersion," Econometrica, Econometric Society, vol. 51(4), pages 955-69, July.
  3. Steven A. Matthews, 1985. "Comparing Auctions for Risk Averse Buyers: A Buyer's Pointof View," Discussion Papers 664R, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  4. Roger B. Myerson, 1994. "Population Uncertainty and Poisson Games," Discussion Papers 1102, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  5. Eden, Benjamin, 1990. "Marginal Cost Pricing When Spot Markets Are Complete," Journal of Political Economy, University of Chicago Press, vol. 98(6), pages 1293-1306, December.
  6. James D. Dana Jr., 1999. "Equilibrium Price Dispersion Under Demand Uncertainty: The Roles of Costly Capacity and Market Structure," RAND Journal of Economics, The RAND Corporation, vol. 30(4), pages 632-660, Winter.
  7. Shilony, Yuval, 1977. "Mixed pricing in oligopoly," Journal of Economic Theory, Elsevier, vol. 14(2), pages 373-388, April.
  8. Peters, Michael, 1985. "Immobility, Rationing and Price Competition," Review of Economic Studies, Wiley Blackwell, vol. 52(4), pages 593-604, October.
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