Information and Prices with Capacity Constraints
In the theoretical literature on consumer search, one conclusion is nearly universal: as buyers become better able to observe and compare prices ex ante, sellers will set lower prices in equilibrium. In this paper, I examine a standard consumer search model with one small -- yet often relevant -- additional restriction: I assume that sellers are capacity constrained. In this environment, I illustrate that the conventional wisdom regarding information and prices does not necessarily hold: having more informed consumers can lead to a decrease in prices, have no effect at all, or even lead to an increase in prices.
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Volume (Year): 101 (2011)
Issue (Month): 4 (June)
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- Albaek, Svend & Mollgaard, Peter & Overgaard, Per B, 1997.
"Government-Assisted Oligopoly Coordination? A Concrete Case,"
Journal of Industrial Economics,
Wiley Blackwell, vol. 45(4), pages 429-43, December.
- Svend Albæk & Peter Møllgaard & Per Baltzer Overgaard, 1997. "Government-Assisted Oligopoly Coordination? A Concrete Case," CIE Discussion Papers 1997-03, University of Copenhagen. Department of Economics. Centre for Industrial Economics.
- Diamond, Peter A., 1971. "A model of price adjustment," Journal of Economic Theory, Elsevier, vol. 3(2), pages 156-168, June.
- Kenneth Burdett & Shouyong Shi & Randall Wright, 2001. "Pricing and Matching with Frictions," Journal of Political Economy, University of Chicago Press, vol. 109(5), pages 1060-1085, October.
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