Search, Information, and Prices

Dirk Bergemann, Benjamin Brooks and Stephen Morris

No 2224, Cowles Foundation Discussion Papers from Cowles Foundation for Research in Economics, Yale University

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 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: 59 pages
Date: 2020-03
New Economics Papers: this item is included in nep-com, nep-des, nep-mic and nep-ore
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

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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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