Equilibrium price dispersion with heterogeneous searchers
Document Type
Journal article
Source Publication
International Journal of Industrial Organization
Publication Date
11-1-2011
Volume
29
Issue
6
First Page
645
Last Page
654
Publisher
Elsevier BV
Keywords
Price dispersion, Search, Search cost, Bounded rationality
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, 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. When the (exogenous) reservation price of local searchers depart from that of the optimizing sequential searchers by a relatively small amount, the presence of local searchers either has no effect on market outcomes or benefits all consumers. A reduction in search cost sometimes leads to higher equilibrium prices.
DOI
10.1016/j.ijindorg.2011.03.007
Print ISSN
01677187
Publisher Statement
Copyright © 2011 Elsevier B.V.
Access to external full text or publisher's version may require subscription.
Full-text Version
Publisher’s Version
Language
English
Recommended Citation
Chen, Y., & Zhang, T. (2011). Equilibrium price dispersion with heterogeneous searchers. International Journal of Industrial Organization, 29(6), 645-654. doi: 10.1016/j.ijindorg.2011.03.007