Dynamic Price Discrimination, Competitive Markets and the Matching Process

In a competitive market for an ex ante homogenous good where stores and consumers enter in a sequential manner, consumers experience either a good match or a bad match. Upon entry the individual consumer selects a store from which to sample and remains with that store if he experiences a good match. The outcome is determined by an exogenous stochastic process. Consumer uncertainty enables stores to price discriminate against loyal consumers. In the steady state the market will feature two prices, with only one store at any one time charging the low price within a particular location.