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Firm-specific information, product differentiation, and industry equilibrium

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  • Perloff, Jeffrey M
  • Salop, Steven

Abstract

Where consumers have imperfect information about specific firms' prices and lack information about the market, firms have informational market power. In general, improving the consumer's information about each firm's price will not necessarily lower average market price. We show, however, that certain types of improvements will lower price. Moreover, a reduction in barriers to entry (e.g., capital costs) will lower price-holding information constant. Where a significant number (but not all) consumers have perfect information, single-price equilibria are impossible.

Suggested Citation

  • Perloff, Jeffrey M & Salop, Steven, 1985. "Firm-specific information, product differentiation, and industry equilibrium," Department of Agricultural & Resource Economics, UC Berkeley, Working Paper Series qt60v9q47r, Department of Agricultural & Resource Economics, UC Berkeley.
  • Handle: RePEc:cdl:agrebk:qt60v9q47r
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    References listed on IDEAS

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    1. Stiglitz, J E, 1979. "Equilibrium in Product Markets with Imperfect Information," American Economic Review, American Economic Association, vol. 69(2), pages 339-345, May.
    2. Steven Salop & Joseph Stiglitz, 1977. "Bargains and Ripoffs: A Model of Monopolistically Competitive Price Dispersion," Review of Economic Studies, Oxford University Press, pages 493-510.
    3. Stiglitz, Joseph E, 1975. "The Theory of "Screening," Education, and the Distribution of Income," American Economic Review, American Economic Association, pages 283-300.
    4. Diamond, Peter A., 1971. "A model of price adjustment," Journal of Economic Theory, Elsevier, vol. 3(2), pages 156-168, June.
    5. Seade, Jesus K, 1980. "On the Effects of Entry," Econometrica, Econometric Society, vol. 48(2), pages 479-489, March.
    6. Louis L. Wilde & Alan Schwartz, 1979. "Equilibrium Comparison Shopping," Review of Economic Studies, Oxford University Press, vol. 46(3), pages 543-553.
    7. George A. Akerlof, 1970. "The Market for "Lemons": Quality Uncertainty and the Market Mechanism," The Quarterly Journal of Economics, Oxford University Press, vol. 84(3), pages 488-500.
    8. Michael Spence, 1973. "Job Market Signaling," The Quarterly Journal of Economics, Oxford University Press, vol. 87(3), pages 355-374.
    9. Robert Wilson, 1977. "A Bidding Model of Perfect Competition," Review of Economic Studies, Oxford University Press, vol. 44(3), pages 511-518.
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    Cited by:

    1. repec:eee:indorg:v:54:y:2017:i:c:p:175-191 is not listed on IDEAS
    2. Kathy Baylis & Jeffrey Perloff, 2002. "Price Dispersion on the Internet: Good Firms and Bad Firms," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 21(3), pages 305-324, November.
    3. Gladys López-Acevedo, 1997. "Quantal response equilibria for posted offer-markets," Estudios Económicos, El Colegio de México, Centro de Estudios Económicos, vol. 12(2), pages 95-131.
    4. Thomas A Abbott III, 1992. "Price Dispersion In U.S. Manufacturing: Implications For The Aggregation Of Products And Firms," Working Papers 92-3, Center for Economic Studies, U.S. Census Bureau.
    5. Carlton, Dennis W. & Perloff, Jeffrey M., 1989. "The Economics of Information," Research Reports 25156, University of Connecticut, Food Marketing Policy Center.
    6. Ran Spiegler, 2006. "The Market for Quacks," Review of Economic Studies, Oxford University Press, vol. 73(4), pages 1113-1131.
    7. Muck, Johannes, 2016. "Tariff-mediated network effects with incompletely informed consumers," DICE Discussion Papers 210, University of Düsseldorf, Düsseldorf Institute for Competition Economics (DICE).
    8. Thomas A Abbott Iii, 1989. "Price Dispersion in U.S. Manufacturing," Working Papers 89-7, Center for Economic Studies, U.S. Census Bureau.

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