Buyer Subsidies in an Equilibrium Model of Price Dispersion
We present a model of equilibrium price dispersion in which a per-unit subsidy to buyers can reduce average prices. The reason is that subsidies have two effects on average prices that work in opposite directions. First, subsidies raise buyers' willingness-to-pay, and by itself this causes firms to charge higher prices. However, since a higher willingness-to-pay lowers the relative cost of search, subsidies also induce more search. This creates a second effect that puts pressure on firms to reduce prices. We show that the second effect can dominate, thus causing an overall reduction in average price. Copyright Verein für Socialpolitik and Blackwell Publishing Ltd 2003.
If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Volume (Year): 4 (2003)
Issue (Month): (November)
|Contact details of provider:|| Web page: http://www.blackwellpublishing.com/journal.asp?ref=1465-6485|
More information through EDIRC
|Order Information:||Web: http://www.blackwellpublishing.com/subs.asp?ref=1465-6485|
References listed on IDEAS
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.:
- Wilde, Louis L, 1992. "Comparison Shopping as a Simultaneous Move Game," Economic Journal, Royal Economic Society, vol. 102(412), pages 562-69, May.
- Wilde, Louis L & Schwartz, Alan, 1979.
"Equilibrium Comparison Shopping,"
Review of Economic Studies,
Wiley Blackwell, vol. 46(3), pages 543-53, July.
- Butters, Gerard R, 1977. "Equilibrium Distributions of Sales and Advertising Prices," Review of Economic Studies, Wiley Blackwell, vol. 44(3), pages 465-91, October.
- Ekkehard Kessner & Mattias K. Polborn, 2000. "A New Test of Price Dispersion," German Economic Review, Verein für Socialpolitik, vol. 1(2), pages 221-240, 05.
- Dennis C. Mueller & B. Burcin Yurtoglu, 2000. "Country Legal Environments and Corporate Investment Performance," German Economic Review, Verein für Socialpolitik, vol. 1(2), pages 187-220, 05.
When requesting a correction, please mention this item's handle: RePEc:bla:germec:v:4:y:2003:i::p:497-501. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Wiley-Blackwell Digital Licensing)or (Christopher F. Baum)
If references are entirely missing, you can add them using this form.