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Price Dispersion, Search Externalities, and the Digital Divide

Manfred Nermuth (), Giacomo Pasini (), Paolo Pin () and Simon Weidenholzer

Vienna Economics Papers from University of Vienna, Department of Economics

Abstract: We propose a model of price competition where consumers exogenously differ in the number of prices they compare. Our model can be interpreted either as a non–sequential search model or as a network model of price competition. We show that i) if consumers who previously just sampled one firm start to compare more prices all types of consumers will expect to pay a lower price and ii) if consumers who already sampled more than one price sample (even) more prices then there exists a threshold –the digital divide– such that all consumers comparing fewer prices than this threshold will expect to pay a higher price whereas all consumers comparing more prices will expect to pay a lower price than before.

JEL-codes: D43 D85 L11 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-com and nep-mkt
Date: 2009-12
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http://homepage.univie.ac.at/Papers.Econ/RePEc/vie/viennp/vie0916.pdf (application/pdf)

Related works:
Journal Article: The informational divide (2013) Downloads
Working Paper: A Network Model of Price Dispersion (2008) Downloads
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