A Simple Model of Equilibrium Price Dispersion
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In this article, the authors show that price dispersion can exist even within the context of a very simple model, where identical buyers with elastic demand curves sample sequentially from a known price distribution, at a fixed cost per observation.Abstract:
This paper demonstrates that price dispersion can exist even within the context of a very simple model. Identical buyers with elastic demand curves sample sequentially from a known price distribution, at a fixed cost per observation. Firms are assumed to be perfectly informed of buyers' reservation prices and demand functions. Given the firms' distribution of marginal costs, firms' behavior as monopolistic competitors results in their offering a distribution of prices which is consistent with expected utility maximization by buyers and with expected profit maximization by sellers.read more
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References
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Book
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The economics of job search: a survey*
Steven A. Lippman,John J. McCall +1 more
TL;DR: In this paper, the authors present a comprehensive and inte- grated analysis of job search, which is characterized by incomplete information and search is conducted in an optimal manner, and a variety of job-search models are studied in this microeconomic setting.