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Search with Learning and Price Adjustment Dynamics

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  • Arthur Fishman

Abstract

We present a model of consumer search with learning in which cost shocks have different short- and long-range effects on prices. In the short run, consumers confuse general cost shocks, common to all firms in the industry, with firm-specific shocks. In the case of a general cost increase, this promotes an excessive propensity to search, restraining the amount by which prices increase in the short run. Conversely, in the case of an idiosyncratic cost increase, consumers search too little, causing the prices of high-cost firms to overshoot.

Suggested Citation

  • Arthur Fishman, 1996. "Search with Learning and Price Adjustment Dynamics," The Quarterly Journal of Economics, Oxford University Press, vol. 111(1), pages 253-268.
  • Handle: RePEc:oup:qjecon:v:111:y:1996:i:1:p:253-268.
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    File URL: http://hdl.handle.net/10.2307/2946664
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Jun Honda, 2015. "Intermediary Search for Suppliers in Procurement Auctions," Department of Economics Working Papers wuwp203, Vienna University of Economics and Business, Department of Economics.
    2. Rauh, Michael T., 1997. "A Model of Temporary Search Market Equilibrium," Journal of Economic Theory, Elsevier, vol. 77(1), pages 128-153, November.
    3. Maarten Janssen & Sandro Shelegia, 2015. "Consumer Search and Double Marginalization," American Economic Review, American Economic Association, vol. 105(6), pages 1683-1710, June.
    4. Fishman, Arthur & Finkelshtain, Israel & Simhon, Avi & Yacouel, Nira, 2008. "The Economics of Collective Brands," Discussion Papers 46056, Hebrew University of Jerusalem, Department of Agricultural Economics and Management.
    5. Cabral, Luís & Fishman, Arthur, 2012. "Business as usual: A consumer search theory of sticky prices and asymmetric price adjustment," International Journal of Industrial Organization, Elsevier, vol. 30(4), pages 371-376.
    6. Tack Yun & Andrew Levin, 2009. "Reconsidering the Microeconomic Foundations of Price-Setting Behavior," 2009 Meeting Papers 798, Society for Economic Dynamics.
    7. repec:aea:aejmic:v:9:y:2017:i:3:p:63-99 is not listed on IDEAS
    8. Honda, Jun, 2015. "Intermediary Search for Suppliers in Procurement Auctions," Department of Economics Working Paper Series 4628, WU Vienna University of Economics and Business.
    9. Daniel Garcia & Jun Honda & Maarten Janssen, 2017. "The Double Diamond Paradox," American Economic Journal: Microeconomics, American Economic Association, vol. 9(3), pages 63-99, August.
    10. Fishman, Arthur & Simhon, Avi, 2005. "Can small menu costs explain sticky prices?," Economics Letters, Elsevier, vol. 87(2), pages 227-230, May.
    11. Joshua Sherman & Avi Weiss, 2015. "Price Response, Asymmetric Information and Competition," Economic Journal, Royal Economic Society, vol. 125(589), pages 2077-2115, December.
    12. S. Dupraz, 2017. "A Kinked-Demand Theory of Price Rigidity," Working papers 656, Banque de France.
    13. Maarten Janssen & Alexei Parakhonyak & Anastasia Parakhonyak, 2014. "Non-reservation price equilibria and Consumer search," HSE Working papers WP BRP 51/EC/2014, National Research University Higher School of Economics.
    14. Maarten Janssen & Paul Pichler & Simon Weidenholzer, 2009. "Sequential Search with Incompletely Informed Consumers: Theory and Evidence from Retail Gasoline Markets," Vienna Economics Papers 0914, University of Vienna, Department of Economics.
    15. repec:eee:jetheo:v:172:y:2017:i:c:p:120-162 is not listed on IDEAS

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