Price Dispersion, Search Externalities, and the Digital Divide

Manfred Nermuth, Giacomo Pasini, Paolo Pin and Simon Weidenholzer

Vienna Economics Papers from University of Vienna, Department of Economics

Abstract: We propose a model of price competition where consumers exogenously differ in the number of prices they compare. Our model can be interpreted either as a non–sequential search model or as a network model of price competition. We show that i) if consumers who previously just sampled one firm start to compare more prices all types of consumers will expect to pay a lower price and ii) if consumers who already sampled more than one price sample (even) more prices then there exists a threshold – the digital divide – such that all consumers comparing fewer prices than this threshold will expect to pay a higher price whereas all consumers comparing more prices will expect to pay a lower price than before.

JEL-codes: D43 D85 L11 (search for similar items in EconPapers)
Date: 2009-12
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