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Non-reservation price equilibria and Consumer search

Author

Listed:
  • Maarten Janssen

    () (National Research University Higher School of Economics)

  • Alexei Parakhonyak

    () (National Research University Higher School of Economics)

  • Anastasia Parakhonyak

    () (Toulouse School of Economics.)

Abstract

When consumers do not know the prices at which different firms sell, they often also do not know production costs. Consumer search models which take asymmetric information about production costs into account continue focusing on reservation price equilibria (RPE) and their properties. We argue that RPE assume specific out-of-equilibrium beliefs that are not consistent with the logic of the D1 refinement criterion. Moreover, RPE suffer from a non-existence problem as they typically do not exist when cost uncertainty is large. We characterize an alternative class of socalled non-RPE. We show these equilibria always exist and do not rely on specific out-of-equilibrium beliefs. Non-reservation equilibria are characterized by active consumer search among consumers. As cost uncertainty facilitates search, more consumers make price comparisons resulting in stronger price competition between firms and higher consumer surplus.

Suggested Citation

  • Maarten Janssen & Alexei Parakhonyak & Anastasia Parakhonyak, 2014. "Non-reservation price equilibria and Consumer search," HSE Working papers WP BRP 51/EC/2014, National Research University Higher School of Economics.
  • Handle: RePEc:hig:wpaper:51/ec/2014
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Alexei Parakhonyak & Anton Sobolev, 2015. "Nonā€Reservation Price Equilibrium and Search without Priors," Economic Journal, Royal Economic Society, vol. 0(584), pages 887-909, May.
    2. Daniel Garcia, 2017. "Dynamic Pricing with Search Frictions," CESifo Working Paper Series 6765, CESifo Group Munich.
    3. repec:aea:aejmic:v:9:y:2017:i:3:p:63-99 is not listed on IDEAS
    4. Eeva Mauring, 2017. "Informational Cycles in Search Markets," Vienna Economics Papers 1708, University of Vienna, Department of Economics.
    5. Daniel Garcia & Jun Honda & Maarten Janssen, 2017. "The Double Diamond Paradox," American Economic Journal: Microeconomics, American Economic Association, vol. 9(3), pages 63-99, August.
    6. repec:eee:mateco:v:81:y:2019:i:c:p:1-13 is not listed on IDEAS
    7. Daniel Garcia, 2017. "Dynamic Pricing with Search Frictions," CESifo Working Paper Series 6765, CESifo Group Munich.

    More about this item

    Keywords

    Sequential Search; Non-Reservation Price Equilibria; Asymmetric Information;

    JEL classification:

    • D40 - Microeconomics - - Market Structure, Pricing, and Design - - - General
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

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