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Search, Information, and Prices

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Abstract

Consider a market with identical firms offering a homogeneous good. A consumer obtains price quotes from a subset of firms and buys from the firm offering the lowest price. The "price count" is the number of firms from which the consumer obtains a quote. For any given ex ante distribution of the price count, we derive a tight upper bound (under first-order stochastic dominance) on the equilibrium distribution of sales prices. The bound holds across all models of firms' common-prior higher-order beliefs about the price count, including the extreme cases of full information (firms know the price count) and no information (firms only know the ex ante distribution of the price count). A qualitative implication of our results is that a small ex ante probability that the price count is equal to one can lead to a large increase in the expected price. The bound also applies in a large class of models where the price count distribution is endogenously determined, including models of simultaneous and sequential consumer search.

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  • Dirk Bergemann & Benjamin Brooks & Stephen Morris, 2020. "Search, Information, and Prices," Cowles Foundation Discussion Papers 2224R2, Cowles Foundation for Research in Economics, Yale University, revised Nov 2020.
    • Handle: RePEc:cwl:cwldpp:2224r2
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    Cited by:

    1. Mark Armstrong & John Vickers, 2022. "Patterns of Competitive Interaction," Econometrica, Econometric Society, vol. 90(1), pages 153-191, January.
    2. Mark Armstrong & Jidong Zhou, 2022. "Consumer Information and the Limits to Competition," American Economic Review, American Economic Association, vol. 112(2), pages 534-577, February.
    3. Dirk Bergemann & Alessandro Bonatti, 2024. "Data, Competition, and Digital Platforms," American Economic Review, American Economic Association, vol. 114(8), pages 2553-2595, August.
    4. Teh, Christopher & Wang, Chengsi & Watanabe, Makoto, 2024. "Strategic limitation of market accessibility: Search platform design and welfare," Journal of Economic Theory, Elsevier, vol. 216(C).
    5. Groh, Carl-Christian, 2023. "Search, Data, and Market Power," VfS Annual Conference 2023 (Regensburg): Growth and the "sociale Frage" 277701, Verein für Socialpolitik / German Economic Association.
    6. Vickers, John, 2021. "Competition for imperfect consumers," International Journal of Industrial Organization, Elsevier, vol. 79(C).
    7. Dirk Bergemann & Benjamin Brooks & Stephen Morris, 2020. "Competition and Public Information: A Note," Cowles Foundation Discussion Papers 2234, Cowles Foundation for Research in Economics, Yale University.
    8. Brian C. Albrecht & Mark Whitmeyer, 2023. "Comparison Shopping: Learning Before Buying From Duopolists," Papers 2302.06580, arXiv.org, revised Apr 2023.
    9. Carl-Christian Groh, & Jonas von Wangenheim, 2024. "Pigou Meets Wolinsky: Search, Price Discrimination, and Consumer Sophistication," CRC TR 224 Discussion Paper Series crctr224_2024_527, University of Bonn and University of Mannheim, Germany.

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    More about this item

    Keywords

    Search; Price Competition; Bertrand Competition; Law of One Price; Price Count; Price Quote; Information Structure; Bayes Correlated Equilibrium;
    All these keywords.

    JEL classification:

    • D41 - Microeconomics - - Market Structure, Pricing, and Design - - - Perfect Competition
    • D42 - Microeconomics - - Market Structure, Pricing, and Design - - - Monopoly
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness

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