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Non-reservation price equilibria and consumer search

Maarten Janssen, Alexei Parakhonyak and Anastasia Parakhonyak

Journal of Economic Theory, 2017, vol. 172, issue C, 120-162

Abstract: Reservation price equilibria (RPE) do not accurately assess market power in consumer search markets. In most search markets, consumers do not know important elements of the environment in which they search (such as, for example, firms' cost). We argue that when consumers learn when searching, RPE suffer from theoretical issues, such as non-existence and critical dependence on specific out-of-equilibrium beliefs. We characterize equilibria where consumers rationally choose search strategies that are not characterized by a reservation price. Non-RPE always exist and do not depend on specific out-of-equilibrium beliefs. Non-RPE have active consumer search and are consistent with recent empirical findings.

Keywords: Sequential search; Non-reservation price equilibria; Asymmetric information; Consumer learning (search for similar items in EconPapers)
JEL-codes: D40 D83 L13 (search for similar items in EconPapers)
Date: 2017
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Working Paper: Non-reservation price equilibria and Consumer search (2014) Downloads
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DOI: 10.1016/j.jet.2017.08.003

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