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Bargaining, Search Costs and Equilibrium Price Distributions

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  • Helmut Bester

Abstract

This paper studies a bargaining model of equilibrium price distributions. Consumers choose a seller at random and face search costs to switching to another store. In the market equilibrium, the prices at all stores are determined simultaneously as the perfect equilibrium of a bargaining game. In this game, the buyer has the outside option to search for another seller. Differences between the sellers' types create price dispersions; typically the number of active sellers increases with higher search costs. The market equilibrium converges to the competitive equilibrium under perfect information when search costs become small.

Suggested Citation

  • Helmut Bester, 1988. "Bargaining, Search Costs and Equilibrium Price Distributions," Review of Economic Studies, Oxford University Press, vol. 55(2), pages 201-214.
  • Handle: RePEc:oup:restud:v:55:y:1988:i:2:p:201-214.
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    File URL: http://hdl.handle.net/10.2307/2297577
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    Citations

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    Cited by:

    1. Gantner, Anita, 2008. "Bargaining, search, and outside options," Games and Economic Behavior, Elsevier, vol. 62(2), pages 417-435, March.
    2. Ed Hopkins, "undated". "Price Dispersion: An Evolutionary Approach," Discussion Papers 1996-3, Edinburgh School of Economics, University of Edinburgh.
    3. Bester, Helmut, 1995. "A bargaining model of financial intermediation," European Economic Review, Elsevier, vol. 39(2), pages 211-228, February.
    4. Cerqueiro, Geraldo & Degryse, Hans & Ongena, Steven, 2011. "Rules versus discretion in loan rate setting," Journal of Financial Intermediation, Elsevier, vol. 20(4), pages 503-529, October.
    5. Chatterjee, Kalyan & Lee, Ching Chyi, 1998. "Bargaining and Search with Incomplete Information about Outside Options," Games and Economic Behavior, Elsevier, vol. 22(2), pages 203-237, February.
    6. Bester, H., 1991. "Bargaining vs. price competition in a market with quality uncertainty," Discussion Paper 1991-13, Tilburg University, Center for Economic Research.
    7. Alexander Raskovich, 2006. "Ordered Bargaining," EAG Discussions Papers 200610, Department of Justice, Antitrust Division.
    8. Jason Allen & Robert Clark & Jean-François Houde, 2014. "Search Frictions and Market Power in Negotiated Price Markets," NBER Working Papers 19883, National Bureau of Economic Research, Inc.
    9. Ponsatí­, Clara & Sákovics, József, 2008. "Queues, not just mediocrity: Inefficiency in decentralized markets with vertical differentiation," International Journal of Industrial Organization, Elsevier, vol. 26(4), pages 998-1014, July.
    10. Selçuk Özyurt, 2015. "Searching for a Bargain: Power of Strategic Commitment," American Economic Journal: Microeconomics, American Economic Association, vol. 7(1), pages 320-353, February.
    11. Raskovich, Alexander, 2007. "Ordered bargaining," International Journal of Industrial Organization, Elsevier, vol. 25(5), pages 1126-1143, October.
    12. Vesala, Timo, 2004. "Asymmetric information in credit markets and entrepreneurial risk taking," Research Discussion Papers 14/2004, Bank of Finland.
    13. repec:spr:eurase:v:8:y:2018:i:1:d:10.1007_s40822-017-0084-y is not listed on IDEAS
    14. Clara Ponsati & Jozsef Sakovics, 2005. "Markets for professional services: queues and mediocrity," ESE Discussion Papers 133, Edinburgh School of Economics, University of Edinburgh.
    15. Yuxin Chen & Sha Yang & Ying Zhao, 2008. "A Simultaneous Model of Consumer Brand Choice and Negotiated Price," Management Science, INFORMS, vol. 54(3), pages 538-549, March.
    16. Mitsutoshi M. Adachi, 1998. "A note on frictions in the Bazaar type bargaining game," Investigaciones Economicas, Fundación SEPI, vol. 22(2), pages 293-304, May.

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