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Search, Information, and Prices

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Abstract

Consider a market with many identical firms offering a homogeneous good. A consumer obtains price quotes from a subset of firms and buys from the firm offering the lowest price. The "price count" is the number of firms from which the consumer obtains a quote. For any given ex ante distribution of the price count, we obtain a tight upper bound (under first-order stochastic dominance) on the equilibrium distribution of sale prices. The bound holds across all models of firms' common-prior higher-order beliefs about the price count, including the extreme cases of complete information ( firms know the price count exactly) and no information ( firms only know the ex ante distribution of the price count). A qualitative implication of our results is that even a small ex ante probability that the price count is one can lead to dramatic increases in the expected price. The bound also applies in a wide class of models where the price count distribution is endogenized, including models of simultaneous and sequential consumer search.

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  • Dirk Bergemann & Benjamin Brooks & Stephen Morris, 2020. "Search, Information, and Prices," Cowles Foundation Discussion Papers 2224, Cowles Foundation for Research in Economics, Yale University.
    • Handle: RePEc:cwl:cwldpp:2224
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    Cited by:

    1. Mark Armstrong & Jidong Zhou, 2022. "Consumer Information and the Limits to Competition," American Economic Review, American Economic Association, vol. 112(2), pages 534-577, February.
    2. Bonatti, Alessandro & Bergemann, Dirk, 2022. "Data, Competition, and Digital Platforms," CEPR Discussion Papers 17544, C.E.P.R. Discussion Papers.
    3. Mark Armstrong & John Vickers, 2022. "Patterns of Competitive Interaction," Econometrica, Econometric Society, vol. 90(1), pages 153-191, January.
    4. Vickers, John, 2021. "Competition for imperfect consumers," International Journal of Industrial Organization, Elsevier, vol. 79(C).
    5. Dirk Bergemann & Benjamin Brooks & Stephen Morris, 2020. "Competition and Public Information: A Note," Cowles Foundation Discussion Papers 2234, Cowles Foundation for Research in Economics, Yale University.
    6. Brian C. Albrecht & Mark Whitmeyer, 2023. "Comparison Shopping: Learning Before Buying From Duopolists," Papers 2302.06580, arXiv.org, revised Apr 2023.
    7. Groh, Carl-Christian, 2023. "Search, Data, and Market Power," VfS Annual Conference 2023 (Regensburg): Growth and the "sociale Frage" 277701, Verein für Socialpolitik / German Economic Association.

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    More about this item

    Keywords

    Search; Price Competition; Bertrand Competition; Law of One Price; Price Count; Price Quote; Information Structure; Bayes Correlated Equilibrium;
    All these keywords.

    JEL classification:

    • D41 - Microeconomics - - Market Structure, Pricing, and Design - - - Perfect Competition
    • D42 - Microeconomics - - Market Structure, Pricing, and Design - - - Monopoly
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness

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