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Inflation, price competition and consumer search technology

  • Watanabe, Makoto

This paper studies an (S, s) pricing model from the perspective of inflation and price competition in search markets. I present a model in which consumers'search technologies can influence firms' price setting, price dispersion, and the market structure. The result shows that although price competition among firms is more intensified in markets where consumers' search technologies are more efficient, price inflation is counter-intuitively, more likely to increase monopoly power of firms and to stimulate entry in these markets. The model also provides new empirical implications for firms' price setting behaviors.

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Paper provided by Universidad Carlos III de Madrid. Departamento de Economía in its series UC3M Working papers. Economics with number we065623.

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Date of creation: Oct 2006
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Handle: RePEc:cte:werepe:we065623
Contact details of provider: Web page: http://www.eco.uc3m.es/

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  23. Daniel Levy & Mark Bergen & Shantanu Dutta & Robert Venable, 1997. "The Magnitude of Menu Costs: Direct Evidence from Large U. S. Supermarket Chains," The Quarterly Journal of Economics, Oxford University Press, vol. 112(3), pages 791-824.
  24. Andrzej Skrzypacz & Jerzy D. Konieczny, 2005. "Search, Costly Price Adjustment and the Frequency of Price Changes – Theory and Evidence," 2005 Meeting Papers 782, Society for Economic Dynamics.
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  38. Glenn Ellison & Sara Fisher Ellison, 2005. "Lessons About Markets from the Internet," Journal of Economic Perspectives, American Economic Association, vol. 19(2), pages 139-158, Spring.
  39. Andrew C. Caplin & Daniel F. Spulber, 1987. "Menu Costs and the Neutrality of Money," NBER Working Papers 2311, National Bureau of Economic Research, Inc.
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  41. Austan Goolsbee, 2000. "In a World Without Borders: The Impact of Taxes on Internet Commerce," The Quarterly Journal of Economics, Oxford University Press, vol. 115(2), pages 561-576.
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