(Quasi) uniqueness and restoring dynamics of price-dispersion market equilibria under search cost

Francisco Alvarez Gonzalez () and José-Manuel Rey

Journal of Mathematical Economics, 2019, vol. 81, issue C, 1-13

Abstract: We study existence, uniqueness and restoring dynamics of price-dispersion equilibria in a market for a homogeneous good. We assume that costs are heterogeneous across participating firms. Specifically, we rely on classical extreme value theory and some recent developments on fee-setting mechanisms to consider cost distributions that are Generalized Pareto. Our analysis provides results on the existence and uniqueness of a price-dispersion equilibrium that link the cost dispersion across firms with the search cost of consumers. If the former is large enough compared to the latter, existence and a form of uniqueness of price-dispersion equilibrium arise. In addition, we propose a natural best-response market dynamics that delivers convergence to the price-dispersion equilibrium, even if the market departs slightly from the Diamond paradox equilibrium.

Keywords: Price dispersion; Search cost; Equilibrium restoring dynamics; Diamond paradox (search for similar items in EconPapers)
Date: 2019
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Persistent link: https://EconPapers.repec.org/RePEc:eee:mateco:v:81:y:2019:i:c:p:1-13

DOI: 10.1016/j.jmateco.2018.12.002

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