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Multiplicity of equilibria in search markets with free entry and exit

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  • Pereira, Pedro

Abstract

In this paper I identify an instance of multiplicity of equilibria, in search markets with production cost heterogeneity. I show that if firms may enter or exit the market, there may be multiple equilibria. I provide a monotonicity property, which is necessary and sufficient for uniqueness. Multiplicity vanishes as the search cost gets small. Multiple equilibria can be ranked by welfare.
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  • Pereira, Pedro, 2005. "Multiplicity of equilibria in search markets with free entry and exit," International Journal of Industrial Organization, Elsevier, vol. 23(5-6), pages 325-339, June.
  • Handle: RePEc:eee:indorg:v:23:y:2005:i:5-6:p:325-339
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    References listed on IDEAS

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    1. Rothschild, Michael, 1974. "Searching for the Lowest Price When the Distribution of Prices Is Unknown," Journal of Political Economy, University of Chicago Press, vol. 82(4), pages 689-711, July/Aug..
    2. Kreps, David M & Wilson, Robert, 1982. "Sequential Equilibria," Econometrica, Econometric Society, vol. 50(4), pages 863-894, July.
    3. Reinganum, Jennifer F, 1979. "A Simple Model of Equilibrium Price Dispersion," Journal of Political Economy, University of Chicago Press, vol. 87(4), pages 851-858, August.
    4. Benabou Roland, 1993. "Search Market Equilibrium, Bilateral Heterogeneity, and Repeat Purchases," Journal of Economic Theory, Elsevier, vol. 60(1), pages 140-158, June.
    5. Morgan, Peter & Manning, Richard, 1985. "Optimal Search," Econometrica, Econometric Society, vol. 53(4), pages 923-944, July.
    6. Pereira, Pedro, 2001. "Market power, cost reduction and consumer search," International Journal of Industrial Organization, Elsevier, vol. 19(9), pages 1457-1473, November.
    7. Michael Rothschild, 1974. "Searching for the Lowest Price When the Distribution of Prices Is Unknown: A Summary," NBER Chapters,in: Annals of Economic and Social Measurement, Volume 3, number 1, pages 293-294 National Bureau of Economic Research, Inc.
    8. MacMinn, Richard D, 1980. "Search and Market Equilibrium," Journal of Political Economy, University of Chicago Press, vol. 88(2), pages 308-327, April.
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    More about this item

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

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