The Durability of Information, Market efficiency and the Size of Firms: Search with Repeated Transaction

Arthur Fishman and Rafael Rob

No 275556, Foerder Institute for Economic Research Working Papers from Tel-Aviv University > Foerder Institute for Economic Research

Abstract: We consider a dynamic model of search where firms are heterogenous with respect to their unit costs of production. For an individual firm, these costs vary from period to period (as a consequence of idiosyncratic technology shocks, perhaps), but for the market as a whole the distribution of costs remains intact. Despite this constancy we show that both the price level as well as the efficiency of market outcomes depends on the variability of costs — at the individual—firm level. We also show how the history of cost realizations segments the set of firms into large and small ones. Hence, firms which are ex—ante identical end up having different size clientele, and different profitabilities. Finally, we show that steady—state equilibria are highly indeterminate.

Keywords: Financial Economics; Marketing (search for similar items in EconPapers)
Pages: 29
Date: 1992-01
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Persistent link: https://EconPapers.repec.org/RePEc:ags:isfiwp:275556

DOI: 10.22004/ag.econ.275556

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