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Price Dispersion: An Evolutionary Approach

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In many markets it is possible to find rival sellers charging different prices for the same good. Earlier research has explained this phenomenon by demon-strating the existence of dispersed price equilibria when consumers must make use of costly search to discover prices. Taking as a starting point the model of Burdett and Judd (Econometric, 1983), this paper, extending evolutionary techniques to a game with nonlinear payoffs and a continuum of strategies, reexamines the question of price dispersion from an evolutionary, disequilibrium perspective. That is, firms and consumers adjust behaviour adaptively in response to current market conditions. We find that dispersed price equilibria are unstable when consumers use a fixed sample size search rule but may be stable when a reservation price rule is used.
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  • Ed Hopkins, "undated". "Price Dispersion: An Evolutionary Approach," Department of Economics 1996 : III, Edinburgh School of Economics, University of Edinburgh.
    • Handle: RePEc:edn:edecdp:9603
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    Cited by:

    1. JÃrg Oechssler & Frank Riedel, 2001. "Evolutionary dynamics on infinite strategy spaces," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 17(1), pages 141-162.
    2. Hopkins, Ed, 1999. "A Note on Best Response Dynamics," Games and Economic Behavior, Elsevier, vol. 29(1-2), pages 138-150, October.
    3. Robert Jump, 2013. "Results on the Stability of a Simple Wage Posting Model," Studies in Economics 1319, School of Economics, University of Kent.
    4. Kirman, Alan P. & Vriend, Nicolaas J., 2001. "Evolving market structure: An ACE model of price dispersion and loyalty," Journal of Economic Dynamics and Control, Elsevier, vol. 25(3-4), pages 459-502, March.

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    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • C83 - Mathematical and Quantitative Methods - - Data Collection and Data Estimation Methodology; Computer Programs - - - Survey Methods; Sampling Methods

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