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.
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Volume (Year): 18 (2001)
Issue (Month): 3 ()
|Note:||Received: July 27, 1999; revised version: May 24, 2000|
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