The informational divide

Manfred Nermuth, Giacomo Pasini, Paolo Pin and Simon Weidenholzer

Games and Economic Behavior, 2013, vol. 78, issue C, 21-30

Abstract: We propose a model of price competition where consumers exogenously differ in the number of prices they compare. Our model can be interpreted either as a non-sequential search model or as a network model of price competition. We show that (i) if consumers who previously just sampled one firm start to compare more prices all types of consumers will expect to pay a lower price and (ii) if consumers who already sampled more than one price sample (even) more prices then there exists a threshold – the informational divide – such that all consumers comparing fewer prices than this threshold will expect to pay a higher price whereas all consumers comparing more prices will expect to pay a lower price than before. Thus increased search can create a negative externality and it is not necessarily beneficial for all consumers.

Keywords: Price dispersion; Welfare effects of search; Price competition on networks; Informational divide (search for similar items in EconPapers)
JEL-codes: D43 D85 L11 (search for similar items in EconPapers)
Date: 2013
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Related works:
Working Paper: A Network Model of Price Dispersion (2008)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:gamebe:v:78:y:2013:i:c:p:21-30

DOI: 10.1016/j.geb.2012.10.016

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