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A simple model of price dispersion

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  • Alexander Chudik

Abstract

This article considers a simple stock-flow matching model with fully informed market participants. Unlike in the standard matching literature, prices are assumed to be set ex-ante. When sellers pre-commit themselves to sell their products at an advertised price, the unique equilibrium is characterized by price dispersion due to the idiosyncratic match payoffs (in a marketplace with full information). This provides new insights into the price dispersion literature, where price dispersion is commonly assumed to be generated by a costly search of uninformed buyers.

Suggested Citation

  • Alexander Chudik, 2012. "A simple model of price dispersion," Globalization Institute Working Papers 112, Federal Reserve Bank of Dallas.
    • Handle: RePEc:fip:feddgw:112
    Note: Published as: Chudik, Alexander (2012), "A Simple Model of Price Dispersion," Economics Letters 117 (1): 344-347.
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    References listed on IDEAS

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    Cited by:

    1. Ofer H Azar, 2015. "A Linear City Model with Asymmetric Consumer Distribution," PLOS ONE, Public Library of Science, vol. 10(6), pages 1-13, June.

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    More about this item

    JEL classification:

    • C78 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Bargaining Theory; Matching Theory
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection

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