Price dispersion

Simon Anderson () and André de Palma ()

No 2003032, CORE Discussion Papers from Université catholique de Louvain, Center for Operations Research and Econometrics (CORE)

Abstract: We model firm pricing given consumers follow simple reservation price rules. Such reservation rules are rational when consumers are sufficiently impatient. The equilibrium exhibits price dispersion in pure strategies, with lower price firms earning higher profits. The range of price dispersion increases with the number of firms: the highest price is the monopoly one, while the lowest price tends to marginal cost. The average transaction price remains substantially above marginal cost even in the limit. Introducing shoppers may increase market prices. Finally, we show that equilibrium prices become less dispersed as consumers become more patient.

Keywords: price dispersion; reservation price rule; passive search (search for similar items in EconPapers)
JEL-codes: D43 D83 C72 (search for similar items in EconPapers)
Date: 2003-05-01
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Working Paper: Price Dispersion (2003)
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