Price Dispersion with Directed Search

Gabriele Camera and Cemil Selcuk

Purdue University Economics Working Papers from Purdue University, Department of Economics

Abstract: We study a market where identical capacity-constrained sellers compete to attract identical buyers, via price advertisements. Once buyers reach a store, prices might be renegotiable in a manner that is responsive to excess demand. We focus strongly symmetric equilibria, proving their existence and providing explicit solutions for the distributions of advertised and sale prices as functions of market characteristics. Since variations in the posted price can affect the store s attractiveness and the incidence of haggling, the model endogenizes the pricing convention prevailing in the market and generates several empirically testable predictions on market behavior.

Keywords: Directed Search; Endogenous Trading Mechanisms; Market Frictions; Price Dispersion (search for similar items in EconPapers)
JEL-codes: C78 D39 D49 E39 (search for similar items in EconPapers)
Pages: 42 pages
Date: 2004-12
New Economics Papers: this item is included in nep-com and nep-mac
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Citations: View citations in EconPapers (18)

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Journal Article: Price Dispersion with Directed Search (2009)
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Persistent link: https://EconPapers.repec.org/RePEc:pur:prukra:1173

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