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The Stability of Price Dispersion under Seller and Consumer Learning

  • Ed Hopkins

    (University of Edinburgh)

  • Roberty M. Seymour

    (University College, London)

In many markets it is possible to find rival sellers charging different prices for the same good. Earlier research has attempted to explain this phenomenon by demonstrating the existence of dispersed price equilibria when consumers must make use of costly search to discover prices. We ask whether such equilibria can be learnt when sellers adjust prices adaptively in response to current market conditions. With consumer behaviour fixed, convergence to a dispersed price equilibrium is possible in some cases. However, once consumer learning is introduced, the monopoly outcome first found by Diamond (1971) is the only stable equilibrium.

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File URL: http://econwpa.repec.org/eps/game/papers/0203/0203002.pdf
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Paper provided by EconWPA in its series Game Theory and Information with number 0203002.

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Length: 36 pages
Date of creation: 04 Mar 2002
Date of revision:
Handle: RePEc:wpa:wuwpga:0203002
Note: Type of Document - pdf; prepared on PC; pages: 36; figures: included
Contact details of provider: Web page: http://econwpa.repec.org

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  1. Schlag, Karl H., 1998. "Why Imitate, and If So, How?, : A Boundedly Rational Approach to Multi-armed Bandits," Journal of Economic Theory, Elsevier, vol. 78(1), pages 130-156, January.
  2. Ed Hopkins, . "A Note on Best Response Dynamics," ESE Discussion Papers 3, Edinburgh School of Economics, University of Edinburgh.
  3. Erev, Ido & Roth, Alvin E, 1998. "Predicting How People Play Games: Reinforcement Learning in Experimental Games with Unique, Mixed Strategy Equilibria," American Economic Review, American Economic Association, vol. 88(4), pages 848-81, September.
  4. Ed Hopkins, . "Learning, Matching and Aggregation," Department of Economics 1996 : II, Edinburgh School of Economics, University of Edinburgh.
  5. Tilman B�rgers & Rajiv Sarin, . "Learning Through Reinforcement and Replicator Dynamics," ELSE working papers 051, ESRC Centre on Economics Learning and Social Evolution.
  6. Rothschild, Michael, 1973. "Models of Market Organization with Imperfect Information: A Survey," Journal of Political Economy, University of Chicago Press, vol. 81(6), pages 1283-1308, Nov.-Dec..
  7. Cason, Timothy N. & Friedman, Daniel, 2003. "Buyer search and price dispersion: a laboratory study," Journal of Economic Theory, Elsevier, vol. 112(2), pages 232-260, October.
  8. K. Schlag, 2010. "Why Imitate, and if so, How? Exploring a Model of Social Evolution," Levine's Working Paper Archive 454, David K. Levine.
  9. Benabou Roland, 1993. "Search Market Equilibrium, Bilateral Heterogeneity, and Repeat Purchases," Journal of Economic Theory, Elsevier, vol. 60(1), pages 140-158, June.
  10. Young, H Peyton, 1993. "The Evolution of Conventions," Econometrica, Econometric Society, vol. 61(1), pages 57-84, January.
  11. JÃrg Oechssler & Frank Riedel, 2001. "Evolutionary dynamics on infinite strategy spaces," Economic Theory, Springer, vol. 17(1), pages 141-162.
  12. Wilde, Louis L, 1992. "Comparison Shopping as a Simultaneous Move Game," Economic Journal, Royal Economic Society, vol. 102(412), pages 562-69, May.
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