Strategic Complementarities and Search Market Equilibrium

Michael Rauh ()

No 2006-01, Working Papers from Indiana University, Kelley School of Business, Department of Business Economics and Public Policy

Abstract: In this paper, we apply supermodular game theory to the equilibrium search literature with sequential search. We identify necessary and sufficient conditions for strategic complementarities and prove existence of search market equilibrium. When firms are identical, the Diamond Paradox obtains and is robust within the class of search cost densities that are small near zero and support strategic complementarities. Price dispersion is therefore inherently incompatible with strategic complementarities. Finally, we show that a major criticism of the literature, that agents act as if they know the distribution of prices, can be justified in the sense of convergent best response dynamics.

Keywords: Diamond Paradox; price dispersion; search; strategic complementarities (search for similar items in EconPapers)
JEL-codes: D43 D83 L0 (search for similar items in EconPapers)
Date: 2006
New Economics Papers: this item is included in nep-cse and nep-mic
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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http://kelley.iu.edu/riharbau/RePEc/iuk/wpaper/bepp2006-01-rauh.pdf (application/pdf)

Related works:
Journal Article: Strategic complementarities and search market equilibrium (2009)
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Persistent link: https://EconPapers.repec.org/RePEc:iuk:wpaper:2006-01

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