A simple model of price dispersion

Alexander Chudik

Economics Letters, 2012, vol. 117, issue 1, 344-347

Abstract: This article considers a simple stock-flow matching model with fully informed market participants. Unlike 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, which instead commonly assumes that buyers are not perfectly informed and engage in a costly search.

Keywords: Price dispersion; Stock-flow matching; Ex-ante price setting; Full information (search for similar items in EconPapers)
JEL-codes: C78 D43 (search for similar items in EconPapers)
Date: 2012
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecolet:v:117:y:2012:i:1:p:344-347

DOI: 10.1016/j.econlet.2012.06.003

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