Search, Information and Prices

Stephen Morris, Dirk Bergemann and Benjamin Brooks

No 14521, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: Consider a market with many identical firms offering a homogeneous 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 firms from which the consumer obtains a quote. For any given ex ante distribution of the price count, we obtain a tight upper bound (under first-order stochastic dominance) on the equilibrium distribution of sale prices. The bound holds across all models of firms' common-prior higher-order beliefs about the price count, including the extreme cases of complete information (firms know the price count exactly) and no information (firms 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 priceâ€; 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)
Date: 2020-03
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)

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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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