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Equilibrium price dispersion with heterogeneous searchers

  • Chen, Yongmin
  • Zhang, Tianle

Firms simultaneously set prices in a homogeneous-product market where uninformed consumers search for price information. Some uninformed consumers are local searchers who visit only one seller, possibly due to high search costs or bounded rationality; whereas others search sequentially with an optimal reservation price. Equilibrium prices may follow a mixture distribution, with clusters of high and low prices separated by a zero-density gap. The presence of local searchers raises prices for high-value products but can lower prices for low-value products. A reduction in search cost sometimes leads to higher equilibrium prices.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 16490.

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Date of creation: 27 Jul 2009
Handle: RePEc:pra:mprapa:16490
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