Firm strategy and biased decision making: the price dispersion puzzle

Ofer Azar

Applied Economics, 2013, vol. 45, issue 7, 901-910

Abstract: This article confronts the empirical evidence and theoretical predictions about the correlation between price dispersion and price. Theoretically, search and location differentiation models suggest that price dispersion is a function of search and transportation costs, but is independent of the good's price. Empirical evidence, however, suggests otherwise: price dispersion and price are strongly correlated. This article points out the discrepancy between theory and evidence, which it denotes as ‘the price dispersion puzzle’. It then explains why the documented behaviour of relative thinking (people behave as if their search or transportation costs are increasing in the good's price) can solve the puzzle.

Date: 2013
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6)

Downloads: (external link)
http://hdl.handle.net/10.1080/00036846.2011.613778 (text/html)
Access to full text is restricted to subscribers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:taf:applec:45:y:2013:i:7:p:901-910

Ordering information: This journal article can be ordered from
http://www.tandfonline.com/pricing/journal/RAEC20

DOI: 10.1080/00036846.2011.613778

Access Statistics for this article

Applied Economics is currently edited by Anita Phillips

More articles in Applied Economics from Taylor & Francis Journals
Bibliographic data for series maintained by Chris Longhurst ().