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Nonstandard Foundations of Equilibrium Search Models

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  • Michael T. Rauh

    (Department of Business Economics and Public Policy, Indiana University Kelley School of Business)

Abstract

We develop an equilibrium sequential search model which includes most of the literature as special cases. In particular, the model can accommodate heterogeneity in buyers’ search costs and demand functions and firms’ cost functions, with general demand and cost functions. We identify conditions which ensure existence of equilibrium in pure strategies, utilizing recent progress in the theory of large games by Khan and Sun. These conditions elucidate the essential structure of equilibrium search models. Although we focus on sequential search, our methodology can be used for other classes of equilibrium search models as well.

Suggested Citation

  • Michael T. Rauh, 2005. "Nonstandard Foundations of Equilibrium Search Models," Working Papers 2005-02, Indiana University, Kelley School of Business, Department of Business Economics and Public Policy.
    • Handle: RePEc:iuk:wpaper:2005-02
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    References listed on IDEAS

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    1. Daniel F. Spulber, 1996. "Market Microstructure and Intermediation," Journal of Economic Perspectives, American Economic Association, vol. 10(3), pages 135-152, Summer.
    2. Rauh, Michael T., 1997. "A Model of Temporary Search Market Equilibrium," Journal of Economic Theory, Elsevier, vol. 77(1), pages 128-153, November.
    3. Khan, M. Ali & Rath, Kali P. & Sun, Yeneng, 1997. "On the Existence of Pure Strategy Equilibria in Games with a Continuum of Players," Journal of Economic Theory, Elsevier, vol. 76(1), pages 13-46, September.
    4. Michael T. Rauh, 2001. "Heterogeneous beliefs, price dispersion, and welfare-improving price controls," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 18(3), pages 577-603.
    5. Rath, Kali P. & Yeneng Sun & Shinji Yamashige, 1995. "The nonexistence of symmetric equilibria in anonymous games with compact action spaces," Journal of Mathematical Economics, Elsevier, vol. 24(4), pages 331-346.
    6. Khan, M. Ali & Sun, Yeneng, 1999. "Non-cooperative games on hyperfinite Loeb spaces1," Journal of Mathematical Economics, Elsevier, vol. 31(4), pages 455-492, May.
    7. KHAN , M. Ali & SUN, Yeneng, 1997. "On Loeb measures spaces and their significance for non-cooperative game theory," LIDAM Discussion Papers CORE 1997012, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    8. Reinganum, Jennifer F, 1979. "A Simple Model of Equilibrium Price Dispersion," Journal of Political Economy, University of Chicago Press, vol. 87(4), pages 851-858, August.
    9. Rafael Rob, 1985. "Equilibrium Price Distributions," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 52(3), pages 487-504.
    10. Carlson, John A & McAfee, R Preston, 1983. "Discrete Equilibrium Price Dispersion," Journal of Political Economy, University of Chicago Press, vol. 91(3), pages 480-493, June.
    11. Benabou Roland, 1993. "Search Market Equilibrium, Bilateral Heterogeneity, and Repeat Purchases," Journal of Economic Theory, Elsevier, vol. 60(1), pages 140-158, June.
    12. Rauh, Michael T., 2004. "Wage and price controls in the equilibrium sequential search model," European Economic Review, Elsevier, vol. 48(6), pages 1287-1300, December.
    13. Michael T. Rauh, 2003. "Non-cooperative games with a continuum of players whose payoffs depend on summary statistics," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 21(4), pages 901-906, June.
    14. Robert, Jacques & Stahl, Dale O, II, 1993. "Informative Price Advertising in a Sequential Search Model," Econometrica, Econometric Society, vol. 61(3), pages 657-686, May.
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    Cited by:

    1. Maris Goldmanis & Ali Hortaçsu & Chad Syverson & Önsel Emre, 2010. "E-Commerce and the Market Structure of Retail Industries," Economic Journal, Royal Economic Society, vol. 120(545), pages 651-682, June.
    2. Caglayan, Mustafa & Filiztekin, Alpay & Rauh, Michael T., 2008. "Inflation, price dispersion, and market structure," European Economic Review, Elsevier, vol. 52(7), pages 1187-1208, October.
    3. Marco A. Haan & José L. Moraga‐González, 2011. "Advertising for Attention in a Consumer Search Model," Economic Journal, Royal Economic Society, vol. 121(552), pages 552-579, May.
    4. Michael Rauh, 2005. "Complementarity, Search, and Price Dispersion," Game Theory and Information 0508008, University Library of Munich, Germany.
    5. Rauh, Michael T., 2009. "Strategic complementarities and search market equilibrium," Games and Economic Behavior, Elsevier, vol. 66(2), pages 959-978, July.
    6. Sun, Xiang & Zeng, Yishu, 2020. "Perfect and proper equilibria in large games," Games and Economic Behavior, Elsevier, vol. 119(C), pages 288-308.
    7. He, Wei & Sun, Xiang & Sun, Yeneng, 2017. "Modeling infinitely many agents," Theoretical Economics, Econometric Society, vol. 12(2), May.
    8. Sun, Xiang & Sun, Yeneng & Yu, Haomiao, 2020. "The individualistic foundation of equilibrium distribution," Journal of Economic Theory, Elsevier, vol. 189(C).
    9. José Tudón, 2021. "Can price dispersion be supported solely by information frictions?," Economic Theory Bulletin, Springer;Society for the Advancement of Economic Theory (SAET), vol. 9(1), pages 75-90, April.

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    More about this item

    Keywords

    Search; equilibrium search models; nonstandard analysis;
    All these keywords.

    JEL classification:

    • L0 - Industrial Organization - - General
    • 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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