Heterogeneous beliefs, price dispersion, and welfare-improving price controls
We consider a search market model where agents have heterogeneous beliefs about the distribution of prices. A suggestive example shows that Jevon's Law of One Price and standard welfare results are not robust to small heterogeneous errors in beliefs. In particular we show that a price ceiling above marginal cost can reduce price dispersion and improve welfare (by lowering aggregate search costs) without decreasing quantity supplied. These results are broadly consistent with the empirical evidence.
Volume (Year): 18 (2001)
Issue (Month): 3 ()
|Note:||Received: July 27, 1999; revised version: May 24, 2000|
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