Title

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

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.

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Full-text Version

Publisher’s Version

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