Search, Price Setting and Inflation
A model of monopolistic competition in an inflationary environment is devel oped that embodies optimal sequential search, price dynamics, and ent ry on the part of consumers and firms, respectively. Equilibrium pric e strat-egies are (S,s); these bounds increase continu-ously with con sumer search costs, and so does price dispersion. Indeed, the whole e quilibrium varies smoothly from the competitive (Bertrand) to the mon opolistic (Diamond .1971.). A positive relationship between (smooth a nd perfectly anticipated) inflation and price dispersion or uncertain ty is established. Copyright 1988 by The Review of Economic Studies Limited.
Volume (Year): 55 (1988)
Issue (Month): 3 (July)
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