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Nonsequential Search Equilibrium with Search Cost Heterogeneity

Author

Listed:
  • Jose Luis Moraga-Gonzalez

    (University of Groningen and CESifo)

  • Zsolt Sandor

    (Universidad Carlos III de Madrid)

  • Matthijs R. Wildenbeest

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

Abstract

We generalize the model of Burdett and Judd (1983) to the case where an arbitrary finite number of firms sells a homogeneous good to buyers who have heterogeneous search costs. We show that a price dispersed symmetric Nash equilibrium always exists. Numerical results show that the behavior of prices with respect to the number of firms hinges upon the shape of the search cost distribution: when search costs are relatively concentrated (dispersed), entry of firms leads to higher (lower) average prices.

Suggested Citation

  • Jose Luis Moraga-Gonzalez & Zsolt Sandor & Matthijs R. Wildenbeest, 2010. "Nonsequential Search Equilibrium with Search Cost Heterogeneity," Working Papers 2010-11, Indiana University, Kelley School of Business, Department of Business Economics and Public Policy.
  • Handle: RePEc:iuk:wpaper:2010-11
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    References listed on IDEAS

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    1. Michael R. Baye & John Morgan & Patrick Scholten, 2004. "Price Dispersion In The Small And In The Large: Evidence From An Internet Price Comparison Site," Journal of Industrial Economics, Wiley Blackwell, vol. 52(4), pages 463-496, December.
    2. Moraga-González, José Luis & Wildenbeest, Matthijs R., 2008. "Maximum likelihood estimation of search costs," European Economic Review, Elsevier, vol. 52(5), pages 820-848, July.
    3. Jeffrey M. Perloff & Steven C. Salop, 1985. "Equilibrium with Product Differentiation," Review of Economic Studies, Oxford University Press, vol. 52(1), pages 107-120.
    4. Saul Lach & Jose Luis Moraga-Gonzalez, 2009. "Asymmetric Price Effects of Competition," Tinbergen Institute Discussion Papers 09-049/2, Tinbergen Institute.
    5. Varian, Hal R, 1980. "A Model of Sales," American Economic Review, American Economic Association, vol. 70(4), pages 651-659, September.
    6. Matthijs R. Wildenbeest, 2011. "An empirical model of search with vertically differentiated products," RAND Journal of Economics, RAND Corporation, vol. 42(4), pages 729-757, December.
    7. Haynes, Michelle & Thompson, Steve, 2008. "Price, price dispersion and number of sellers at a low entry cost shopbot," International Journal of Industrial Organization, Elsevier, vol. 26(2), pages 459-472, March.
    8. Seade, Jesus K, 1980. "On the Effects of Entry," Econometrica, Econometric Society, vol. 48(2), pages 479-489, March.
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    13. Richards, Timothy J. & Hamilton, Stephen F. & Allender, William, 2016. "Search and price dispersion in online grocery markets," International Journal of Industrial Organization, Elsevier, vol. 47(C), pages 255-281.
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    18. Barron, John M. & Taylor, Beck A. & Umbeck, John R., 2004. "Number of sellers, average prices, and price dispersion," International Journal of Industrial Organization, Elsevier, vol. 22(8-9), pages 1041-1066, November.
    19. Burdett, Kenneth & Judd, Kenneth L, 1983. "Equilibrium Price Dispersion," Econometrica, Econometric Society, vol. 51(4), pages 955-969, July.
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    Citations

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    Cited by:

    1. Jason R. Blevins & Garrett T. Senney, 2014. "Dynamic Selection and Distributional Bounds on Search Costs in Dynamic Unit-Demand Models," Working Papers 14-02, Ohio State University, Department of Economics.
    2. Yankov, Vladimir, 2014. "In Search of a Risk-free Asset," Finance and Economics Discussion Series 2014-108, Board of Governors of the Federal Reserve System (U.S.).
    3. Babur De los Santos & In Kyung Kim & Dmitry Lubensky, 2013. "Do MSRPs Decrease Prices?," Working Papers 2013-13, Indiana University, Kelley School of Business, Department of Business Economics and Public Policy.
    4. Lach, Saul & Moraga-González, José-Luis, 2009. "Heterogeneous Price Information and the Effect of Competition," CEPR Discussion Papers 7319, C.E.P.R. Discussion Papers.
    5. Jose Luis Moraga-Gonzalez & Zsolt Sandor & Matthijs R. Wildenbeest, "undated". "Do higher search costs make the markets less competitive?," Working Papers 2013-08, Indiana University, Kelley School of Business, Department of Business Economics and Public Policy.

    More about this item

    Keywords

    nonsequential search; oligopoly; arbitrary search cost distributions;

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games

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