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Costly Search, Capacity Constraints, and Bertrand Equilibrium Price Dispersion

Michael Arnold ()

International Economic Review, 2000, vol. 41, issue 1, 117-31

Abstract: This article analyzes the impact of transaction (search) costs and capacity constraints in an almost competitive market with homogeneous firms that compete on price. We characterize conditions under which Nash equilibria with price dispersion exist; in equilibrium, firms play pure strategies in prices and consumers adopt a symmetric mixed search strategy. Price dispersion is possible even though consumers all have the same search cost and valuation for the item and prices charged by all firms are common knowledge. Copyright 2000 by Economics Department of the University of Pennsylvania and the Osaka University Institute of Social and Economic Research Association.

Date: 2000
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