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The Stability of Price Dispersion under Seller and Consumer Learning

Author

Listed:
  • Ed Hopkins

    (University of Edinburgh)

  • Robert M. Seymour

    (University College, London)

Abstract

In many markets, it is possible to find rival sellers charging different prices for the same good. Earlier research has attempted to explain this phenomenon by demonstrating the existence of dispersed price equilibria when consumers must make use of costly search to discover prices. We ask whether such equilibria can be learned when sellers adjust prices adaptively in response to current market conditions. With consumer behavior fixed, convergence to a dispersed price equilibrium is possible in some cases. However, once consumer learning is introduced, the monopoly outcome first found by Diamond ("Journal of Economic Theory"3 (1971), 156-68) is the only stable equilibrium. Copyright 2002 by the Economics Department of the University of Pennsylvania and Osaka University Institute of Social and Economic Research Association

Suggested Citation

  • Ed Hopkins & Robert M. Seymour, 2002. "The Stability of Price Dispersion under Seller and Consumer Learning," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 43(4), pages 1157-1190, November.
    • Handle: RePEc:ier:iecrev:v:43:y:2002:i:4:p:1157-1190
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    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness

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