 Pricing with frictionsKenneth Burdett, Shouyong Shi and Randall Wright No 98-9, Working Papers from Federal Reserve Bank of Philadelphia Abstract: The authors analyze markets where each of n buyers wants to buy one unit and each of m sellers wants to sell one or more units of an indivisible good. Sellers first set prices, then buyers choose which sellers to visit. There are equilibria where each buyer visits sellers at random and faces a positive probability of rationing when too many other buyers show up at the same location. The authors solve for equilibrium prices and other variables as functions of n and m, compare the outcome to the predictions of other models, and derive some limiting results as the economy gets large. The authors also discuss the impact of changes in capacity and show that the effects of an increase in supply can be very different depending on whether it occurs along the intensive or the extensive margin (a change in the number of units of output per seller or in the number of sellers). Among other things, this last result suggests that the standard matching function in the equilibrium search literature is misspecified. On the basis of this interpretation, the authors propose that the observed outward shift in the Beveridge curve may be explained by a shift in the firm-size distribution. Keywords: Prices; Wages (search for similar items in EconPapers) There are no downloads for this item, see the EconPapers FAQ for hints about obtaining it. Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:fip:fedpwp:98-9 Ordering information: This working paper can be ordered from Access Statistics for this paper More papers in Working Papers from Federal Reserve Bank of Philadelphia Contact information at EDIRC. |
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