A simple model of price dispersion

Alexander Chudik

No 112, Globalization Institute Working Papers from Federal Reserve Bank of Dallas

Abstract: This article considers a simple stock-flow matching model with fully informed market participants. Unlike in the standard matching literature, prices are assumed to be set ex-ante. When sellers pre-commit themselves to sell their products at an advertised price, the unique equilibrium is characterized by price dispersion due to the idiosyncratic match payoffs (in a marketplace with full information). This provides new insights into the price dispersion literature, where price dispersion is commonly assumed to be generated by a costly search of uninformed buyers.

JEL-codes: C78 D43 (search for similar items in EconPapers)
Pages: 8 pages
Date: 2012
New Economics Papers: this item is included in nep-dge
Note: Published as: Chudik, Alexander (2012), "A Simple Model of Price Dispersion," Economics Letters 117 (1): 344-347.
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