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Equilibrium price dispersion with heterogeneous searchers

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  • Chen, Yongmin
  • Zhang, Tianle

Abstract

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.

Suggested Citation

  • Chen, Yongmin & Zhang, Tianle, 2009. "Equilibrium price dispersion with heterogeneous searchers," MPRA Paper 16490, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:16490
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    References listed on IDEAS

    as
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    Cited by:

    1. Moraga-González, José L. & Sándor, Zsolt & Wildenbeest, Matthijs R., 2014. "Prices, Product Differentiation, And Heterogeneous Search Costs," IESE Research Papers D/1097, IESE Business School.
    2. Jose L. Moraga-Gonzalez, 2015. "Prices, Product Differentiation, and Heterogeneous Search Costs," 2015 Meeting Papers 335, Society for Economic Dynamics.
    3. repec:bla:randje:v:48:y:2017:i:1:p:125-146 is not listed on IDEAS
    4. Kuniavsky, Sergey, 2014. "Consumer Search with Chain Stores," Discussion Papers in Economics 20799, University of Munich, Department of Economics.
    5. Clavorà Braulin, Francesco & Valletti, Tommaso, 2016. "Selling customer information to competing firms," Economics Letters, Elsevier, vol. 149(C), pages 10-14.
    6. Kuniavsky, Sergey, 2014. "Consumer Search With Chain Stores," Annual Conference 2014 (Hamburg): Evidence-based Economic Policy 100468, Verein für Socialpolitik / German Economic Association.
    7. Dmitry Ryvkin & Danila Serra, 2015. "Is more competition always better? An experimental study of extortionary corruption," Working Papers wp2015_10_01, Department of Economics, Florida State University.
    8. repec:eee:indorg:v:55:y:2017:i:c:p:137-165 is not listed on IDEAS
    9. Dieter Pennerstorfer & Philipp Schmidt-Dengler & Nicolas Schutz & Christoph R. Weiss & Biliana Yontcheva, 2015. "Information and Price Dispersion. Theory and Evidence," WIFO Working Papers 502, WIFO.
    10. Anania, Giovanni & Nisticò, Rosanna, 2014. "Price dispersion and seller heterogeneity in retail food markets," Food Policy, Elsevier, vol. 44(C), pages 190-201.
    11. Obradovits, Martin, 2015. "Going to the Discounter: Consumer Search with Local Market Heterogeneities," MPRA Paper 66613, University Library of Munich, Germany.
    12. José Luis Moraga-González & Zsolt Sándor & Matthijs R. Wildenbeest, 2017. "Prices and heterogeneous search costs," RAND Journal of Economics, RAND Corporation, vol. 48(1), pages 125-146, March.
    13. repec:eee:indorg:v:57:y:2018:i:c:p:255-277 is not listed on IDEAS
    14. Chen, Yongmin & Zhang, Tianle, 2016. "Intermediaries and Consumer Search," MPRA Paper 76051, University Library of Munich, Germany.
    15. repec:smu:ecowpa:1301 is not listed on IDEAS
    16. Mathur, Sameer & Sinitsyn, Maxim, 2013. "Price promotions in emerging markets," International Journal of Industrial Organization, Elsevier, vol. 31(5), pages 404-416.

    More about this item

    Keywords

    price dispersion; search; search cost; bounded rationality;

    JEL classification:

    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection

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