Asymmetric marginal costs in search models
I show that marginal cost asymmetry has important implications for search models. In several widely used search models with mixed strategy equilibria, excluding some special cases, firms with different marginal costs cannot randomize prices in the same interval. So, even a small asymmetry in marginal costs may result in a drastic asymmetry in equilibrium prices.
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- Burdett, Kenneth & Mortensen, Dale T, 1998. "Wage Differentials, Employer Size, and Unemployment," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 39(2), pages 257-73, May.
- Varian, Hal R, 1980. "A Model of Sales," American Economic Review, American Economic Association, vol. 70(4), pages 651-59, September.
- Burdett, Kenneth & Judd, Kenneth L, 1983. "Equilibrium Price Dispersion," Econometrica, Econometric Society, vol. 51(4), pages 955-69, July.
- Wilde, Louis L., 1977. "Labor market equilibrium under nonsequential search," Journal of Economic Theory, Elsevier, vol. 16(2), pages 373-393, December.
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