Search with Learning and Price Adjustment Dynamics

Arthur Fishman

No 275604, Foerder Institute for Economic Research Working Papers from Tel-Aviv University > Foerder Institute for Economic Research

Abstract: This paper presents a theory of limited price responsiveness to cost shocks in a context of search with learning. Consumers confuse general cost shocks, common to all firms in the industry, with firm specific shocks. In the case of a general cost increase, this confusion leads to an excessive propensity to search, temporarily inhibiting price increases, lest they encourage search. In the case of an idiosyncratic shock, consumers initially search too little, allowing the prices of high cost firms to temporarily overshoot.

Keywords: Demand and Price Analysis; Financial Economics (search for similar items in EconPapers)
Pages: 37
Date: 1995-05
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:ags:isfiwp:275604

DOI: 10.22004/ag.econ.275604

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