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Oligoply Pricing: the Effects of Search Cost Structure & Heterogeneity

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  • Hyde, C.E.

Abstract

It has been shown that if buyers have zero search cost and the remainder a common positive search cost, and sellers post prices, then there is a unique symmetric Nash equilibrium-sellers choose a price distribution. We show that increasing the number of search cost types results in another equilibrium, having the more realistic property that some buyers search some, but not all, sellers. It is also possible that no equilibrium exists. As the number of finite types becomes large, the equilibrium converges to the competitive price. However, if there is a continuum of types, monopoly pricing occurs. Generalizing the search environment to allow buyers to purchase price information before visiting sellers results in non-existence of an equilibrium if the cost of obtaining the information is sufficiently low. If not, then many of the above properties of equilibrium continue to hold. Price distributions are found to exist in an even wider class of settings if buyers can obtain price information before visiting sellers.

Suggested Citation

  • Hyde, C.E., 1999. "Oligoply Pricing: the Effects of Search Cost Structure & Heterogeneity," Department of Economics - Working Papers Series 727, The University of Melbourne.
  • Handle: RePEc:mlb:wpaper:727
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    References listed on IDEAS

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    1. Nelson, Daniel B, 1991. "Conditional Heteroskedasticity in Asset Returns: A New Approach," Econometrica, Econometric Society, vol. 59(2), pages 347-370, March.
    2. Olan Henry, 1998. "Modelling the asymmetry of stock market volatility," Applied Financial Economics, Taylor & Francis Journals, vol. 8(2), pages 145-153.
    3. Glosten, Lawrence R & Jagannathan, Ravi & Runkle, David E, 1993. " On the Relation between the Expected Value and the Volatility of the Nominal Excess Return on Stocks," Journal of Finance, American Finance Association, vol. 48(5), pages 1779-1801, December.
    4. Brooks, Chris & Heravi, Saeed M, 1999. "The Effect of (Mis-Specified) GARCH Filters on the Finite Sample Distribution of the BDS Test," Computational Economics, Springer;Society for Computational Economics, vol. 13(2), pages 147-162, April.
    5. Engle, Robert F & Ng, Victor K, 1993. " Measuring and Testing the Impact of News on Volatility," Journal of Finance, American Finance Association, vol. 48(5), pages 1749-1778, December.
    6. Hsieh, David A., 1993. "Implications of Nonlinear Dynamics for Financial Risk Management," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 28(01), pages 41-64, March.
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    More about this item

    Keywords

    OLIGOPOLIES ; PRICES ; MARKET STRUCTURE ; GAME THEORY;

    JEL classification:

    • C78 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Bargaining Theory; Matching Theory
    • D40 - Microeconomics - - Market Structure, Pricing, and Design - - - General

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