IDEAS home Printed from https://ideas.repec.org/p/vuw/vuwecf/18622.html

The role of market frictions on the price differential: A search-theoretical approach

Author

Listed:
  • Chang, Chia-Ying

Abstract

To shed light on how market frictions and the waiting time of imitators affect prices and how effective research subsidy and patent protection affect the price differential, this paper adopts a direct search-theoretical approach to capture the searching behaviors of consumers and producers in the innovative and imitative markets. As a result, this model shows that the price differential with endogenous market frictions would react to the change of quality the least. A shorter durability would result in a wider price differential in the model without the extra state for imitators than in the model with the extra state. While a research subsidy shrinks the price differential, and improve consumers’ flow values, the patent protection widens the price differential, hurts imitators’ profits and may not improve the consumers’ flow values. The innovators could take the advantage of the effects of durability on price differential by inventing products which might influence the durability of the products currently hold by the consumers. This finding might provide an explanation on why the latest versions of computer products are invented less likely convertible to older versions of Windows or associated software.

Suggested Citation

  • Chang, Chia-Ying, 2012. "The role of market frictions on the price differential: A search-theoretical approach," Working Paper Series 18622, Victoria University of Wellington, School of Economics and Finance.
    • Handle: RePEc:vuw:vuwecf:18622
    as

    Download full text from publisher

    File URL: https://ir.wgtn.ac.nz/handle/123456789/18622
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. 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.
    2. Rustichini, Aldo & Schmilz, James Jr., 1991. "Research and imitation in long-run growth," Journal of Monetary Economics, Elsevier, vol. 27(2), pages 271-292, April.
    3. Philippe Aghion & Christopher Harris & Peter Howitt & John Vickers, 2001. "Competition, Imitation and Growth with Step-by-Step Innovation," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 68(3), pages 467-492.
    4. Moen, Espen R, 1997. "Competitive Search Equilibrium," Journal of Political Economy, University of Chicago Press, vol. 105(2), pages 385-411, April.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Lutz Arnold & Christian Bauer, 2009. "On the growth and welfare effects of monopolistic distortions," Journal of Economics, Springer, vol. 97(1), pages 19-40, May.
    2. Jess Benhabib & Jesse Perla & Christopher Tonetti, 2014. "Catch-up and fall-back through innovation and imitation," Journal of Economic Growth, Springer, vol. 19(1), pages 1-35, March.
    3. Leung, Charles Ka Yui & Zhang, Jun, 2011. "“Fire Sales” in housing market: is the house-searching process similar to a theme park visit?," MPRA Paper 29127, University Library of Munich, Germany.
    4. Mukoyama, Toshihiko, 2003. "Innovation, imitation, and growth with cumulative technology," Journal of Monetary Economics, Elsevier, vol. 50(2), pages 361-380, March.
    5. Lutz Arnold & Christian Bauer, 2008. "Some Second Thoughts on Monopolistic Distortions and Endogenous Growth," Working Papers 041, Bavarian Graduate Program in Economics (BGPE).
    6. Levy, David M. & Makowsky, Michael D., 2010. "Price dispersion and increasing returns to scale," Journal of Economic Behavior & Organization, Elsevier, vol. 73(3), pages 406-417, March.
    7. Charles Ka Yui Leung & Jun Zhang, 2011. ""Fire Sales" in Housing Market: Is the House- Search Process Similar to a Theme Park Visit?," International Real Estate Review, Global Social Science Institute, vol. 14(3), pages 311-329.
    8. Donna, Javier D. & Schenone, Pablo & Veramendi, Gregory F., 2020. "Networks, frictions, and price dispersion," Games and Economic Behavior, Elsevier, vol. 124(C), pages 406-431.
    9. Fei Li & Charles Murry & Can Tian & Yiyi Zhou, 2024. "Inventory Management In Decentralized Markets," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 65(1), pages 431-470, February.
    10. Richard Rogerson & Robert Shimer & Randall Wright, 2005. "Search-Theoretic Models of the Labor Market: A Survey," Journal of Economic Literature, American Economic Association, vol. 43(4), pages 959-988, December.
    11. Chang, Chia-Ying, 2012. "The role of market frictions on the price differential: A search-theoretical approach," Working Paper Series 2064, Victoria University of Wellington, School of Economics and Finance.
    12. Menzio, Guido & Trachter, Nicholas, 2015. "Equilibrium price dispersion with sequential search," Journal of Economic Theory, Elsevier, vol. 160(C), pages 188-215.
    13. Castilla, Carolina & Haab, Timothy C., 2010. "Asymmetric Search and Loss Aversion: Choice Experiment on Consumer Willingness to Search in the Gasoline Retail Market," 2010 Annual Meeting, July 25-27, 2010, Denver, Colorado 61672, Agricultural and Applied Economics Association.
    14. Ufuk Akcigit & Sina T. Ates, 2023. "What Happened to US Business Dynamism?," Journal of Political Economy, University of Chicago Press, vol. 131(8), pages 2059-2124.
    15. Marattin, Luigi & Marzo, Massimiliano & Zagaglia, Paolo, 2013. "Distortionary tax instruments and implementable monetary policy," International Review of Economics & Finance, Elsevier, vol. 25(C), pages 219-243.
    16. Alberto Galasso & Mihkel Tombak, 2014. "Switching to Green: The Timing of Socially Responsible Innovation," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 23(3), pages 669-691, September.
    17. Lester, Benjamin & Visschers, Ludo & Wolthoff, Ronald, 2015. "Meeting technologies and optimal trading mechanisms in competitive search markets," Journal of Economic Theory, Elsevier, vol. 155(C), pages 1-15.
    18. Anundsen, André K. & Nenov, Plamen & Røed Larsen, Erling & Sommervoll, Dag Einar, 2026. "Pricing and incentives in the housing market," European Economic Review, Elsevier, vol. 183(C).
    19. George J. Mailath & Andrew Postlewaite & Larry Samuelson, 2017. "Premuneration Values and Investments in Matching Markets," Economic Journal, Royal Economic Society, vol. 127(604), pages 2041-2065, September.
    20. Gaffeo, Edoardo, 2011. "The distribution of sectoral TFP growth rates: International evidence," Economics Letters, Elsevier, vol. 113(3), pages 252-255.

    More about this item

    Keywords

    ;
    ;
    ;
    ;
    ;

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:vuw:vuwecf:18622. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Library Technology Services (email available below). General contact details of provider: https://edirc.repec.org/data/egvuwnz.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.