INFLATION AND QUALITY DISPERSION

Richard Dutu

Macroeconomic Dynamics, 2013, vol. 17, issue 6, 1355-1365

Abstract: One questionable aspect of price posting with directed search is the strong commitment by sellers to commit to the advertised terms of trade. In this paper I explore the welfare implications of assuming that sellers cannot commit and vary the quality of their output ex post according to realized demand. I show that such lack of commitment translates into lower participation by buyers, lower average quality, and a consumption-equivalent loss of 0.3% of annual GDP.

Date: 2013
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