Equilibrium price dispersion with heterogeneous searchers

Yongmin Chen and Tianle Zhang

International Journal of Industrial Organization, 2011, vol. 29, issue 6, 645-654

Abstract: Firms simultaneously set prices in a homogeneous-product market where uninformed consumers search for price information. Some uninformed consumers are “local” searchers who visit only one seller, whereas others search sequentially with an optimal reservation price. Equilibrium prices may follow a mixture distribution, with clusters of high and low prices separated by a zero-density gap. When the (exogenous) reservation price of local searchers depart from that of the optimizing sequential searchers by a relatively small amount, the presence of local searchers either has no effect on market outcomes or benefits all consumers. A reduction in search cost sometimes leads to higher equilibrium prices.

Keywords: Price dispersion; Search; Search cost; Bounded rationality (search for similar items in EconPapers)
JEL-codes: D43 D83 (search for similar items in EconPapers)
Date: 2011
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (39)

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Working Paper: Equilibrium price dispersion with heterogeneous searchers (2009)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:indorg:v:29:y:2011:i:6:p:645-654

DOI: 10.1016/j.ijindorg.2011.03.007

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