Price Dispersion, Search Externalities, and the Digital Divide
AbstractWe propose a model of price competition where consumers exogenously differ in the number of prices they compare. Our model can be interpreted either as a non–sequential search model or as a network model of price competition. We show that i) if consumers who previously just sampled one firm start to compare more prices all types of consumers will expect to pay a lower price and ii) if consumers who already sampled more than one price sample (even) more prices then there exists a threshold –the digital divide– such that all consumers comparing fewer prices than this threshold will expect to pay a higher price whereas all consumers comparing more prices will expect to pay a lower price than before.
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Bibliographic InfoPaper provided by University of Vienna, Department of Economics in its series Vienna Economics Papers with number 0916.
Date of creation: Dec 2009
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Other versions of this item:
- D43 - Microeconomics - - Market Structure and Pricing - - - Oligopoly and Other Forms of Market Imperfection
- D85 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Network Formation
- 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-2009-12-19 (All new papers)
- NEP-COM-2009-12-19 (Industrial Competition)
- NEP-MKT-2009-12-19 (Marketing)
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