Equilibrium price dispersion with heterogeneous searchers

Yongmin Chen and Tianle Zhang

MPRA Paper from University Library of Munich, Germany

Abstract: Firms simultaneously set prices in a homogeneous-product market where uninformed consumers search for price information. Some uninformed consumers are local searchers who visit only one seller, possibly due to high search costs or bounded rationality; whereas others search sequentially with an optimal reservation price. Equilibrium prices may follow a mixture distribution, with clusters of high and low prices separated by a zero-density gap. The presence of local searchers raises prices for high-value products but can lower prices for low-value products. A reduction in search cost sometimes leads to higher equilibrium prices.

Keywords: price dispersion; search; search cost; bounded rationality (search for similar items in EconPapers)
JEL-codes: D43 D83 (search for similar items in EconPapers)
Date: 2009-07-27
New Economics Papers: this item is included in nep-com and nep-mic
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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https://mpra.ub.uni-muenchen.de/18757/1/MPRA_paper_18757.pdf revised version (application/pdf)

Related works:
Journal Article: Equilibrium price dispersion with heterogeneous searchers (2011)
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