Search, Information, and Prices

Dirk Bergemann, Benjamin Brooks and Stephen Morris

No 2020-23, Working Papers from Becker Friedman Institute for Research In Economics

Abstract: Consider a market with many identical firms offering a homogenous good. A consumer obtains price quotes from a subset of firms and buys from the firm offering the lowest price. The “price count†is the number of ï¬ rms from which the consumer obtains a quote. For any given ex ante distribution of the price count, we obtain a tight upper bound (under ï¬ rst-order stochastic dominance) on the equilibrium distribution of sale prices. The bound holds across all models of ï¬ rms’ common-prior higher-order beliefs about the price count, including the extreme cases of complete information ( ï¬ rms know the price count exactly) and no information ( ï¬ rms only know the ex ante distribution of the price count). A qualitative implication of our results is that even a small ex ante probability that the price count is one can lead to dramatic increases in the expected price. The bound also applies in a wide class of models where the price count distribution is endogenized, including models of simultaneous and sequential consumer search.

Keywords: Search; Price Competition; Bertrand Competition; "Law of One Price"; Price Count; Price Quote; Information Structure; Bayes Correlated Equilibrium (search for similar items in EconPapers)
JEL-codes: D41 D42 D43 D83 (search for similar items in EconPapers)
Pages: 58 pages
Date: 2020
New Economics Papers: this item is included in nep-com, nep-gth, nep-mic and nep-ore
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

Published in Review of Economics, March 1999, pages 1-23

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https://repec.bfi.uchicago.edu/RePEc/pdfs/BFI_WP_202023.pdf (application/pdf)

Related works:
Journal Article: Search, Information, and Prices (2021)
Working Paper: Search, Information and Prices (2020)
Working Paper: Search, Information, and Prices (2020)
Working Paper: Search, Information, and Prices (2020)
Working Paper: Search, Information, and Prices (2020)
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