Search, Information, and Prices

Dirk Bergemann, Benjamin Brooks and Stephen Morris

No 2224R2, Cowles Foundation Discussion Papers from Cowles Foundation for Research in Economics, Yale University

Abstract: Consider a market with 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 derive a tight upper bound (under first-order stochastic dominance) on the equilibrium distribution of sales prices. The bound holds across all models of firms' common-prior higher-order beliefs about the price count, including the extreme cases of full information (firms know the price count) and no information (firms only know the ex ante distribution of the price count). A qualitative implication of our results is that a small ex ante probability that the price count is equal to one can lead to a large increase in the expected price. The bound also applies in a large class of models where the price count distribution is endogenously determined, 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: 60 pages
Date: 2020-03, Revised 2020-11
New Economics Papers: this item is included in nep-com, 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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