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Oligopolistic competition and search without priors

Alexei Parakhonyak

HSE Working papers from National Research University Higher School of Economics

Abstract: I study a model of oligopolistic competition in which consumers search for prices, but have no idea about the underlying price distribution. Consumers’ behaviour satisfies four consistency requirements such that beliefs about the underlying distribution maximize Shannon entropy. I derive the optimal stopping rule and equilibrium price distribution of the model. Unlike in Stahl (1989), the expected price is decreasing in the number of firms. Moreover, consumers can benefit from being uninformed, if the number of firms is sufficiently large.

Keywords: consumer search; search without priors; bounded rationality; entropy (search for similar items in EconPapers)
JEL-codes: D83 D43 L11 (search for similar items in EconPapers)
Pages: 21 pages
Date: 2013
New Economics Papers: this item is included in nep-com, nep-ind, nep-mic and nep-mkt
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Published in WP BRP Series: Economics / EC, May 2013, pages 1-21

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Persistent link: https://EconPapers.repec.org/RePEc:hig:wpaper:30/ec/2013

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