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Price dispersion

  • ANDERSON, Simon
  • de PALMA, André

We model firm pricing given consumers follow simple reservation price rules. Such reservation rules are rational when consumers are sufficiently impatient. The equilibrium exhibits price dispersion in pure strategies, with lower price firms earning higher profits. The range of price dispersion increases with the number of firms: the highest price is the monopoly one, while the lowest price tends to marginal cost. The average transaction price remains substantially above marginal cost even in the limit. Introducing shoppers may increase market prices. Finally, we show that equilibrium prices become less dispersed as consumers become more patient.

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Paper provided by Université catholique de Louvain, Center for Operations Research and Econometrics (CORE) in its series CORE Discussion Papers with number 2003032.

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Date of creation: 00 May 2003
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Handle: RePEc:cor:louvco:2003032
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  24. Saul Lach, 2002. "Existence and Persistence of Price Dispersion: an Empirical Analysis," NBER Working Papers 8737, National Bureau of Economic Research, Inc.
  25. Pratt, John W & Wise, David A & Zeckhauser, Richard, 1979. "Price Differences in Almost Competitive Markets," The Quarterly Journal of Economics, MIT Press, vol. 93(2), pages 189-211, May.
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