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Price Dispersion Author info | Abstract | Publisher info | Download info | Related research | Statistics Simon P. Anderson ()
André de Palma ()
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We describe firm pricing when consumers search passively and follow simple reservation price rules. In stark contrast to other models in the literature, this approach yields equilib- rium price dispersion in pure strategies even when firms have the same marginal costs. In equilibrium, lower price firms earn higher profits. The range of price dispersion increases with the number of firms: the highest price is the monopoly one, while the lowest price tends to marginal cost. The average transaction price remains substantially above marginal cost even with many firms. Introducing shoppers who buy from the cheapest firm may increase market prices.
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Paper provided by University of Virginia, Department of Economics in its series Virginia Economics Online Papers with number
361.
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Length: 39 pages
Date of creation: Dec 2003Date of revision:
Handle: RePEc:vir:virpap:361Contact details of provider: Web page: http://www.virginia.edu/economics/home.html
For technical questions regarding this item, or to correct its listing, contact: (Debby Stanford).
Keywords: Price dispersion ; reservation price rule ; passive search. ; Other versions of this item:
Paper ANDERSON, Simon & de PALMA, AndrŽ, 2003.
"Price dispersion ,"
CORE Discussion Papers
2003032, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
[Downloadable!] Find related papers by JEL classification: D43 - Microeconomics - - Market Structure and Pricing - - - Oligopoly and Other Forms of Market Imperfection D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search, Learning, and Information C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
This paper has been announced in the following NEP Reports :
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references Cited by : (explanations , Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile , click on "citations" and make appropriate adjustments.)
Il-Horn Hann & Kai-Lung Hui & Sang-Yong Tom Lee & Ivan P.L. Png, 2005.
"Sales and Promotions: A More General Model ,"
Industrial Organization
0508014, EconWPA.
[Downloadable!]
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