price distributions and competition considerable evidence demonstrates that significant dispersion exists in the prices charged for seemingly homogeneous goods this paper adopts a simple flexible equilibrium model of search to investigate the way the market structure influences price dispersion using the noisy search approach the paper demonstrates the effects of having a single large price leading firm with multiple outlets and a competitive fringe of small firms with one retail outlet each

a model of temporary search market equilibrium abstract in the literature on search markets agents know the distribution of prices or learn about it through short run bayesian updating even though the first assumption is unrealistic and the empirical evidence emphasizes learning in the intermediate and long runs in this paper a new search markets theory is developed where agents have beliefs about the distribution of prices based on finitely many of its moments and past market experiences the main results are the existence of a hicks grandmont temporary equilibrium that the equilibrium correspondence has a closed graph and sufficient conditions for price dispersion a simple example illustrates the main ideas journal of economic literature classification numbers d83 l13

price search and periodic price discounts this paper empirically investigates the interplay between buyer search behavior and firm pricing strategy in a commodity market where many firms compete in price to sell homogeneous products we use the heterogeneity in buyer search cost to rationalize why a firm offers periodic price discounts and enjoys a high profit in such a market an estimation method is proposed to recover the nonparametric distribution of buyer search cost from the price and transaction volume data with both data we show that the search cost distribution can be estimated nonparametrically in a sequential search model and estimation results from a nonsequential search model are robust to the assumption on the maximum number of searches we also show that the commonly observed high low pricing strategy can be an optimal strategy for firms when buyers search for price information sequentially as an empirical application we use the proposed method to estimate the two search models using data on a commodity product sold by a firm

protection with static collusion the present paper argues that when static collusion takes place there is a new justification for a tariff this occurs in the context of a model in which consumers observe prices at a cost and the industry structure is a duopoly with a home and a foreign firm because costly search induces imperfect information about prices on the part of consumers the ability to rapidly revise posted prices on the part of the duopolists leads to the appropriation of a substantial amount of consumer surplus the static collusion takes place under any trade policy thus a home tariff that shifts a duopoly equilibrium to the advantage of the home firm will be demonstrated to entail in the case of a nonprohibitive tariff no consumption cost from protection because this tariff generates revenue for the home government and greater profits for the home firm it will be welfare improving to the home country the concept of profit shifting as a motive for commercial policy in imperfectly competitive markets was pioneered by brander and spencer 6 2 in a model where home and foreign duopolists are nash courot competitors a tariff can shift profits from the foreign to the home firm by inducing the foreign firm to play less aggressively in the present paper the tariff shifts profits within the collusive outcome by precluding more aggressive play by the foreign firm 3 furthermore davidson 8 has disclosed that the level of a tariff can affect the incentives to collude in a quantity setting supergame with nash cournot punishments in the present model the tariff affects the collusive outcome that can be supported it does not however affect the incentives to collude

search intensity in oligopoly a simultaneous price setting oligopoly game characterized by the existence of buyers with differing price information is presented the information structure of the game is more general than previously considered thereby permitting a richer analysis in addition to identifying the general conditions that lead to equilibrium with price dispersion the author provides a revealing reinterpretation of models characterized by simpler information structures an important finding of the paper is that additional price information in the market impacts prices differently only if the poorly informed buyers are reached can we expect average prices to decrease copyright 1996 by blackwell publishing ltd

equilibrium price dispersion with sequential search abstract the paper studies equilibrium pricing in a product market for an indivisible good where buyers search for sellers buyers search sequentially for sellers but do not meet every seller with the same probability specifically a fraction of the buyers meetings lead to one particular large seller while the remaining meetings lead to one of a continuum of small sellers in this environment the small sellers would like to set a price that makes the buyers indifferent between purchasing the good and searching for another seller the large seller would like to price the small sellers out of the market by posting a price that is low enough to induce buyers not to purchase from the small sellers these incentives give rise to a game of cat and mouse whose only equilibrium involves mixed strategies for both the large and the small sellers the fact that the small sellers play mixed strategies implies that there is price dispersion the fact that the large seller plays mixed strategies implies that prices and allocations vary over time we show that the fraction of the gains from trade accruing to the buyers is positive and nonmonotonic in the degree of market power of the large seller as long as the large seller has some positive but incomplete market power the fraction of the gains from trade accruing to the buyers depends in a natural way on the extent of search frictions

the market for quacks a group of n quacks plays a price competition game facing a continuum of patients who recover with probability whether or not they acquire a quack s treatment if patients chose rationally the market would be inactive i assume however that patients choose according to a boundedly rational procedure which re ects anecdotal reasoning this element of bounded rationality has signi cant

search costs and prices abstract this paper examines the effect of consumer search costs on the level of prices and price dispersion we show that as search costs decrease prices may increase and price dispersion may also increase

non existence of single wage equilibria in search models with adverse selection in this paper we explore an interesting feature of a class of equilibrium search models with asymmetric information namely pure strategy symmetric nash equilibria i e single wage equilibria fail to exist non existence is due to non concavity of firms payoff functions which in turn is caused by adverse selection this link between adverse selection and non existence has not been discussed previously in the equilibrium search literature we present a simple equilibrium search model that illustrates the non existence of a single wage equilibrium non existence arises because of an informational asymmetry workers differ according to the disutility of effort and these disutilities which are continuously distributed are workers private information if all firms offer a common wage adverse selection occurs a disproportionate fraction of the unemployed consists of workers with high effort disutilities who would be unwilling to work at the going wage workers with lower effort disutilities are more likely to have accepted job offers and exited the pool of unemployed as a result a wage increase and a wage decrease of equal magnitude have asymmetric effects on the probability that the job will be filled this creates a non concavity in each firm s payoff function at any common wage and implies that a firm can profit by deviating from the common wage when the common wage is low the firm will find it profitable to pay a higher wage the opposite is true when the common wage is high indeed for a common wage that is neither unambiguously too low nor too high positive and negative deviations will both be profitable since it will never be in the firm s interest to offer the common wage a pure strategy symmetric nash equilibrium is precluded the next section presents the search model and the non existence result we then interpret our result link it to the equilibrium search literature and consider its generality concluding remarks are given in the final section

strategic price complexity in retail financial markets abstract there is mounting empirical evidence to suggest that the law of one price is violated in retail financial markets there is significant price dispersion even when products are homogeneous also despite the large number of firms in the market prices remain above marginal cost and may even rise as more firms enter in a non cooperative oligopoly pricing model i show that these anomalies arise when firms add complexity to their price structures complexity increases the market power of the firms because it prevents some consumers from becoming knowledgeable about prices in the market in the model as competition increases firms tend to add more complexity to their prices as a best response rather than make their disclosures more transparent because this may substantially decrease consumer surplus in these markets such practices have important welfare implications

information flow job search and migration in this paper an individual model of rural urban migration is studied emphasizing the effects of information flow and urban wage dispersion migration is viewed in the context of a lifetime program of job search it is shown that migration can occur even when the mean urban wage is no larger than the rural income flow both the shape and spread of the urban wage dispersion are shown to affect migration behavior significantly the geographical focus is on developing countries

nash equilibrium efficiency wage distributions this paper extends the shirking model of efficiency wages by introducing worker heterogeneity with respect to the disutility of effort heterogeneity leads to a problem of adverse selection in addition to the moral hazard problem that is present in the original model as a result of adverse selection an equilibrium in which all firms offer the same efficiency wage cannot exist rather a continuously differentiable distribution of wages will be offered in equilibrium we demonstrate this equilibrium by construction and derive it explicitly in the case of a uniform distribution of the effort aversion parameter

using price distributions to estimate search costs we show how the equilibrium restrictions implied by standard search models can be used to estimate search cost distributions using price data alone we consider both sequential and nonsequential search strategies and develop estimation methodologies that exploit equilibrium restrictions to recover estimates of search cost heterogeneity that are theoretically consistent with the search models we illustrate the method using online prices for several economics and statistics textbooks

endogenous quality differentiation in congested markets firms selling a product with congestion externalities to a heterogeneous population of customers have an incentive to offer differentiated levels of quality in a price competitive market differentiation arises endogenously through the prices chosen by firms in equilibrium firms offer a range of prices which induce an efficiency improving range of quality levels and allow customers to self select their preferred price quality combinations additional results suggest that with many firms in the market the choice of prices dominates the choice of service capacities in determining congestion levels copyright 1991 by blackwell publishing ltd

search with learning understanding asymmetric price adjustments in many retail markets prices rise faster than they fall we develop a model of search with learning to explain this phenomenon of asymmetric price adjustments by extending our static game analysis to the dynamic setting we demonstrate that asymmetric price adjustments arise naturally when a positive cost shock occurs all the searchers immediately learn the true state the search intensity and hence the prices fully adjust in the next period when a negative cost shock occurs it takes longer for nonsearchers to learn the true state and the search intensity increases gradually leading to slow falling of prices

do consumers search for the highest price oligopoly equilibrium and monopoly optimum in differentiated products markets we develop a model of search among substitutes for the best combination of commodity variant and price in which the structure of search costs is manipulable by the suppliers of these variants e g by joining an existing market or opening a new one we analyze the subgame perfect equilibria arising in a multistage game involving specialized firms choice of entry variant and price and we compare them to a multiproduct monopolist s optimal choice we show that equilibrium prices increase in the number of substitutes sold in one market and that in the situation considered here monopoly increases welfare

maximum likelihood estimation of search costs abstract in a recent paper hong and shum 2006 using price distributions to estimate search costs rand journal of economics 37 257 275 present a structural method to estimate search cost distributions we extend their approach to the case of oligopoly and present a new maximum likelihood method to estimate search costs we apply our method to a data set of online prices for different computer memory chips the estimates suggest that the consumer population can be roughly split into two groups which either have quite high or quite low search costs search frictions confer a significant amount of market power to the firms despite more than 20 firms operating in each of the markets we estimate price cost margins to be around 25 the paper also illustrates how the structural method can be employed to simulate the effects of the introduction of a sales tax

price advertising and the deterioration of product quality arguments in favour of self enforced bans on advertising by professionals often rely on the stylized fact that advertising can communicate information about price but not about quality this being the case it is argued that allowing professionals to advertise runs the risk that firms will compete vigorously over price at the expense of the quality of their product this paper shows that even if price can communicate no information directly about quality it can do so indirectly because price will be a signal of quality because of this allowing advertising is shown to improve consumer welfare

search and consumer theory a consumer faces list prices for commodities but can buy one at a discount discounts vary randomly between sellers the number of quotations sought depends on list prices search costs and wealth this function is homogeneous of degree zero and provided some sufficient conditions are satisfied is increasing in wealth decreasing in search cost independent of the list price of the discounted commodity if indirect utility is multiplicatively separable increasing in the list price if the commodity is a necessity increasing in the list price of substitutes slutsky s equation is generalized to include search

estimating a market equilibrium search model from panel data on individuals from albrecht and axell 1984 and is based on workers who are homogeneous in terms of market productivity and heterogeneous in terms of nonmarket productivity and on firms which are heterogeneous in terms of productive efficiency the equilibrium model is contrasted in terms of its fit to the data with an unrestricted version of the model which is based on a mixture of negative binomial distributions the equilibrium model fails to conform to the data in exactly the dimension of its major focus namely it implies that measurement error accounts for almost all of the dispersion in observed wages the equilibrium model also does not do well in fitting the unemployment duration distribution compared to the unrestricted model the problem is that the duration distribution itself does not support the existence of significant heterogeneity as evidenced by the estimates of the unrestricted model the paper also illustrates the use of such models for policy analysis by simulating the welfare effects of a minimum wage

the stability of price dispersion under seller and consumer learning in many markets it is possible to find rival sellers charging different prices for the same good earlier research has attempted to explain this phenomenon by demonstrating the existence of dispersed price equilibria when consumers must make use of costly search to discover prices we ask whether such equilibria can be learned when sellers adjust prices adaptively in response to current market conditions with consumer behavior fixed convergence to a dispersed price equilibrium is possible in some cases however once consumer learning is introduced the monopoly outcome first found by diamond journal of economic theory3 1971 156 68 is the only stable equilibrium

testing models of consumer search using data on web browsing and purchasing behavior using a large data set on web browsing and purchasing behavior we test to what extent consumers are searching in accordance to various classical search models we nd that the benchmark model of sequential search with a known distributions of prices can be rejected based on the recall patterns we observe in the data moreover we show that even if consumers are initially unaware of the price distribution and have to learn the price distribution observed search behavior for given consumers over time is more consistent with non sequential search than sequential search with learning our

wage and price controls in the equilibrium sequential search model abstract in this paper we study the effects of wage and price controls on employment output and welfare in a simplified version of the benabou j econom theory 60 1993 140 equilibrium sequential search model with bilateral heterogeneity we show that a price ceiling increases output but the change in welfare depends on three effects the reduction in aggregate search costs the increase in surplus due to increased output and the transfer of production to the least efficient firm the model is formally identical to a standard equilibrium search model of the labor market so analogous results hold for the minimum wage

inflation price dispersion and market structure abstract in this paper we use a novel data set containing prices from bazaars convenience stores and supermarkets in istanbul to re examine the relationship between price dispersion and inflation although existing evidence is mixed we find positive and significant relationships between dispersion on the one hand and lagged dispersion and unexpected product specific inflation on the other we also find evidence that dispersion is initially decreasing in anticipated aggregate inflation but is eventually increasing finally average price duration and dispersion are lowest in the bazaar this is intuitive since menu and search costs should be minimal in that market structure

price dispersion information and learning abstract we consider an economy where trade is decentralized and agents have incomplete information with respect to the value of money agents learning evolves from private experiences and we explore how the formation of prices interacts with learning we show that multiple equilibria arise and equilibria with price dispersion entail more learning than equilibria with one price price dispersion increases communication about private histories which in turn increases the overall amount of information in the economy we also compare ex ante welfare under price dispersion and one price our results show that despite the existence of some meetings where no trade takes place ex ante welfare under price dispersion may be higher than under one price

price dispersion and inflation evidence from israel the paper considers the question whether observed price differentials reflect perceived differences in quality service agreements or location or whether information imperfections can explain this phenomenon it sets out theoretical arguments linking inflation to reductions in the information stock held by agents and thus to greater price dispersion the hypothesis is tested using monthly price data for 13 uniquely defined goods sold in israel between 1971 and 1984 price dispersion is shown to be positively related to the rate of market price inflation since inflation is an unlikely proxy for changes in perceived characteristics the findings support price dispersion theories based on optimally imperfect decision making

protecting buyers from fine print buyers typically do not read the fine print in contracts providing an incentive for a monopolist to draft terms which are unfavorable to buyers we model this problem proving that trade must then be inefficient we show that regulation which mandates efficient terms raises welfare more interestingly regulations which prohibit the least efficient terms may reduce welfare by inducing the monopolist not to offer favorable terms we extend these results to markets in which some buyers are naive showing that prohibiting the least efficient terms may also harm the naive buyers

optimal adaptive price search consider the problem of a consumer desiring to buy a good which is sold at a variety of prices such a buyer will be able to obtain a sequence of price quotations from various sellers when should the buyer stop searching for a lower price if he continues he may obtain a lower price but he incurs additional time effort and expense in searching the optimal price search decision is one of balancing the expectation of a possibly lower price obtained by continued search against cumulative costs from search when the prices arise from a known probability distribution the optimal search strategy has certain well defined and desirable properties in the more realistic case that the buyer has only partial information about the price distribution and must update his beliefs after observing prices in the marketplace the problem becomes more complex and search strategies become less well behaved the major purpose of this article is to determine new conditions under which optimal policies have these desirable characteristics in the case where the consumer possesses only incomplete information about the distribution of prices price quotations he receives in addition to providing him with price possibilities provide him with information about that distribution rothschild 151 in citing an unpublished paper of gastwirth has noted that small specification errors for an assumed distribution can lead to substantial changes in expected number of searches and expected cost consequently the assumption of a known distribution of prices can have a profound effect on total cost 1 0022 053 l 8 l 040001 20 02 00 o

indicators of collateral misreporting automated valuation models avms are widely used in the valuation of pools of residential mortgages in this paper we provide evidence that high pricing errors in human and automated valuation models as well as rejection of loans with relatively low appraisals may generate the appearance of appraisal bias even when the original appraisals are unbiased we also present evidence that the estimated frequency of appraisal overstatement is quite sensitive to assumptions about loan denial rates due to low appraisals as well as the size of and the correlation between avm and original appraisal pricing errors this paper was accepted by amit seru finance

existence and persistence of price dispersion an empirical analysis the hebrew university of jerusalem and nber using a unique data set on store level monthly prices of four homogenous products sold in israel i study the existence and characteristics of the dispersion of prices across stores as well as its persistence over time i find that price dispersion prevails even after controlling for observed and unobserved product heterogeneity moreover intra distribution mobility is significant stores move up and down the cross sectional price distribution thus consumers cannot learn about stores that consistently post low prices as a consequence price dispersion does not disappear and persists over time as predicted by varian s 1980 model of sales

experimentation and competition abstract this paper examines the effect of competition on firms efforts to experiment and learn about market demand consumers are assumed to know prices only at sellers they have actually visited but must bear search costs to find the prices of other sellers under these conditions we show that firms incentives to experiment are diluted by comparison with the monopoly case and that this effect is stronger the smaller the search cost the learning environment we portray gives rise to several time paths which have been empirically documented including penetration pricing cream skimming and cyclical pricing journal of economic literature classification numbers c73 d43 d83

the advertising mix for a search good we extend the persuasion game to bring it squarely into the economics of advertising we model advertising as exciting consumer interest into learning more about the product and determine a firm s equilibrium choice of advertising content over quality information price information and horizontal match information equilibrium is unique whenever advertising is necessary the outcome is a separating equilibrium with quality unravelling lower quality firms need to provide more information for a given quality level as a function of consumer visit costs first quality information is disclosed then price information and then horizontal product information are added to the advertising mix some suggestive evidence is provided from airline ads in newspapers this paper was accepted by j miguel villas boas marketing

equilibrium price distributions equilibrium price distributions for a homogeneous product consistent with individual incentives are investigated they arise in informationally imperfect markets in which the only primitive datum is the distribution of search costs it is shown that single multi and continuous price distributions are all viable long run phenomena depending on the nature of search costs a method for computing equilibrium price distributions is also provided jevons law of one price has long been an accepted dictum in economic theory in a classroom presentation it still serves sometimes implicitly as a major premise in many micro models of market interaction much of the descriptive theory as well as welfare analysis hinges on this assumption yet one s day to day experience reveals that price differentials are a viable phenomenon and that looking for lower prices may very well be a rewarding activity the prospects of eventually hitting a bargain and the resulting price reduction would more than compensate for the cost incurred during the search process moreover the existence of price dispersions appear to be an empirically stable phenomenon snapshots of markets for relatively homogeneous products reveal substantial and recurring price differentials stigler 1961 and pratt wise and zeckhauser 1979 for example report some evidence supporting this claim an important article by stigler 1961 focused economists attention on the crucial role played by the informational structure of markets it gave rise to the study of the

nonstandard foundations of equilibrium search models abstract we develop an equilibrium sequential search model which includes most of the literature as special cases in particular the model can accommodate heterogeneity in buyers search costs and demand functions and firms cost functions with general demand and cost functions we identify conditions which ensure existence of equilibrium in pure strategies utilizing recent progress in the theory of large games by khan and sun these conditions elucidate the essential structure of equilibrium search models although we focus on sequential search our methodology can be used for other classes of equilibrium search models as well

price quality and reputation evidence from an online field experiment we examine the link between price quality seller claims and seller reputation in internet auctions after purchasing actual baseball cards and having them professionally graded we find that some buyers in the online graded market are misled by incredible claims of quality they pay higher prices but do not receive better quality and in fact are defrauded more often online seller reputation is effective for identifying good faith sellers but conditional on completed auctions reputable sellers do not provide better quality evidence also suggests that high claim sellers target less experienced buyers we attribute these patterns to two loopholes in the ebay rating system we benefited from the comments of austan goolsbee raphael thomadsen john shea dan vincent david reiley larry ausubel peter cramton v joseph hotz jeff smith jimmy chan vincent crawford mark duggan and attendees at numerous seminars and conferences we are particularly grateful to seth sanders and john list for their constructive advice at the early stage of the research to timothy bresnahan rachel kranton and thomas hubbard for their detailed suggestions in reshaping earlier versions and to editor ariel pakes and two anonymous referees for their careful readings special thanks to eight friends who acted as our agents in purchasing baseball cards in retail markets and to numerous sports card store owners who shared their insights on the sportscard industry excellent research assistance from randy alexander moore and krzysztof fizyta is gratefully acknowledged any remaining errors are ours

composicao dos gastos publicos e crescimento economico dos municipios brasileiros the goal of this paper is to evaluate the eects of public expenditure composition on the growth of per capita income of the brazilian municipalities in the period 1991 2000 the model by devarajan et alii 1996 was used as reference to verify how structural variables such as education income distribution and violence in addition to the fiscal policy aect local economic growth controlling for the level of per capita income the results indicate that municipalities with per capita income below the poverty line as defined by the world bank have a higher necessity for current spending than those which are above that line estimated quadratic functional forms allowed deriving optimal compositions for the public spending which maximize economic growth according to the position of the municipal district in relation to the poverty line

advertising intensity and welfare in an equilibrium search model i analyze an equilibrium search model in a duopoly setting with bilateral heterogeneities in production and search costs in which firms can advertise by announcing price i compare the market advertising level to the socially optimal level where i find that costly search can improve welfare and that firms may under or over advertise relative to the social optimum depending on the costs of search the results suggest that in markets with sufficiently low search costs firms are likely over advertising relative to the socially optimal level and vice versa for markets with sufficiently high search costs

prices and heterogeneous search costs we study price formation in a model of consumer search for differentiated products in which consumers have heterogeneous search costs we provide conditions under which a pure strategy symmetric nash equilibrium exists and is unique search costs affect two margins the intensive search margin or search intensity and the extensive search margin or the decision to search rather than to not search at all these two margins affect the elasticity of demand in opposite directions and whether lower search costs result in higher or lower prices depends on the properties of the search cost density

price dispersion in the grocery market this paper provides an exploratory study of price dispersion in the grocery market and checks for the consistency of the evidence on this price dispersion with the existing theories of price dispersion due to costly consumer search competition and consumer heterogeneity in the context of the grocery market three dimensions of price dispersion are studied price dispersion for a certain brand across stores price dispersion within a category in a store across brands and price dispersion over time for a certain brand the results show that the standardized price dispersion is positively correlated with consumer search costs competition and consumer heterogeneity

a simple model of price dispersion abstract this article considers a simple stock flow matching model with fully informed market participants unlike the standard matching literature prices are assumed to be set ex ante when sellers pre commit themselves to sell their products at an advertised price the unique equilibrium is characterized by price dispersion due to the idiosyncratic match payoffs in a marketplace with full information this provides new insights into the price dispersion literature which instead commonly assumes that buyers are not perfectly informed and engage in a costly search

directed search on the job and the wage ladder we model a labor market where employed workers search on the job and firms direct workers search using wage offers and employment probabilities applicants observe all offers and face a trade off between wage and employment probability there is wage dispersion among workers even though all workers and jobs are homogeneous equilibrium wages form a ladder as workers optimally choose to climb the ladder one rung at a time this is because low wage applicants are relatively more sensitive to employment probability than to wage and thus forgo the opportunity to apply for a high wage with a lower chance of success

efficiency of simultaneous search this paper presents an equilibrium labor search model in which workers can simultaneously apply to multiple firms to increase their search intensity they observe firms wage postings before choosing where to apply owing to coordination frictions a firm may not receive any applications otherwise it is able to hire unless all its applicants have better offers it is shown that the equilibrium converges to the efficient walrasian outcome as application costs vanish even for nonnegligible application costs the entry of firms the search intensity and the number of filled vacancies are constrained efficient wage dispersion is essential for constrained efficiency

tracking customer search to price discriminate suppose that every time you walked around the mall somebody put a bar code on your shoulder and as you walked into the shops in the mall someone came up and scanned your shoulder and got the number went to a database saying ah yes that s lesley who visited the shop next door 15 minutes ago that s the level of surveillance that s going on on the internet internet entrepreneur jason catlett in a 60 minutes interview with lesley stahl not as private as you think aired november 28 1999 i introduction transaction mechanisms in an electronic marketplace can be much different from those used in traditional markets predominantly brick and mortar markets are described as sellers posting single offer prices that buyers either accept or reject through their purchase decisions without necessarily holding everything else constant two buyers each making concurrent purchases in the same store pay the same posted price for an identical item 1 in particular a buyer that has visited multiple rival stores receives the same price as a buyer that impulsively purchases without comparing any prices in contrast a combination of internet technologies makes it possible to identify the search history of potential customers online retailers generally make use of a standard programming device that produces electronic files to tag individual customers with a unique identification commonly referred to as cookies these small computer files are stored on the hard drive of the customer s computer developers created cookies so that a web site could maintain state even though the http protocol is stateless this allows a web site to recognize an individual and accommodate multiple item purchases from an internet retailer 2 an unintended consequence of this technology is that other web sites namely rival sellers could use a second internet device called a web bug to retrieve the identity of the internet domain that placed a cookie even though the specific information content of the cookie is typically encrypted two different types of web bugs can ascertain the search history of a customer a web bug is a graphic typically one pixel by one pixel in size on a web page and it is designed to monitor who is reading the web page web bugs are virtually invisible because they are uncolored and so small one type an executable web bug is a file that monitors a machine s traffic and hard drive and periodically sends the information back to the web site that planted the bug on the machine the second type is not physically located on the machine and uses a technology called scripts e g javascript activex and perl to scan a hard drive searching for files 3 4 because the process of identifying a customer and posting an offer price is electronic and immediate sellers on the internet can use this technology to post dynamic customer specific prices 5 however the major contributions to the rich literature on consumer search consider only models in which firms post a single price regardless of how informed the customer may be for example braverman 1980 varian 1980 stiglitz 1979 and salop and stiglitz 1977 assume that a consumer is either fully informed or completely unaware of other stores prices and that each firm posts a single price to any customer other work considers sequential consumer search but again each firm posts a single price regardless of how informed the customer may be see for example stahl 1989 stiglitz 1987 rob 1985 burdett and judd 1983 carlson and mcafee 1983 and wilde and schwartz 1979 6 this article explores the fundamental changes to traditional sequential customer search in posted offer markets when firms have the ability to track customers and price discriminate accordingly using controlled experimental markets we investigate how the ability to track customers and offer differentially informed customers different prices affects the prices that buyers receive in aggregate

strategic pricing consumer search and the number of firms discover prices there are three distinct price dispersed equilibria characterized by low moderate and high search intensity the effects of an increase in the number of firms on search behaviour expected prices price dispersion and welfare are sensitive i to the equilibrium consumers search intensity and ii to the status quo number of firms for instance when consumers search with low intensity an increase in the number of firms reduces search does not affect expected price leads to greater price dispersion and reduces welfare in contrast when consumers search with high intensity increased competition results in more search and lower prices when the number of competitors in the market is low to begin with but in less search and higher prices when the number of competitors is large duopoly yields identical expected price and price dispersion but higher welfare than an infinite number of firms a question that has received much attention in economic theory is how the number of competitors and market outcomes are related despite the existence of work showing the contrary see e g satterthwaite 1979 rosenthal 1980 the prediction that emerges from a market where firms interact in a cournot fashion has come to dominate economic thought namely that an increase in the number of competitors leads to larger aggregate production lower market price and improved market performance measured in terms of some social welfare criterion ruffin 1971 this paper challenges the generality of this belief by presenting an oligopoly model with consumer search where the equilibrium expected price may be constant increasing or nonmonotonic in the number of firms we present an economy with two types of consumers consumers who search for prices at no cost fully informed and consumers who must pay a fixed search cost for each price quotation they observe less informed 1 all buyers have the same willingness to pay for the good and buy either a single unit or nothing at all on the supply side of the market there are n firms producing a homogeneous good at constant marginal cost we analyse a one shot simultaneous move game firms set prices and consumers decide how many prices to search for at the same moment in time our model is essentially an oligopolistic version of burdett and judd 1983 where some consumers search costlessly in this model consumers search using a fixed sample size search strategy i e they choose the number of prices to observe before receiving any offer nonsequential search is appealing when consumers find it more advantageous to gather price information quickly morgan and manning 1985 this occurs when the search outcome is observed with delay and delay is costly for instance an mba graduate looking for a job 1 the presence in the model of consumers who search costlessly captures the fact that some people have a

characterization of the support of the mixed strategy price equilibria in oligopolies with heterogeneous consumers abstract this paper revisits the theory of oligopoly pricing and shows that for a large class of demand and cost functions a mixed strategy equilibrium necessarily implies that each firm s equilibrium strategy is a discrete distribution over a finite number of prices

price dispersion in duopolies with heterogeneous consumers abstract in this paper i modify varian s varian h r 1980 a model of sales american economic review 70 4 651 659 model of sales to allow for heterogeneity in consumer preferences i show that in mixed strategy equilibria each firm charges a finite number of prices using this characterization i examine the effect of consumer heterogeneity on firms optimal pricing strategies

informative price advertising in a sequential search model the purpose of this paper is to study the role and implications of price advertising when shopping trips are costly to consumers to do so we introduce advertising into an optimal sequential search model information about prices is both gathered by consumers and disseminated by firms consumers search sequentially and stores advertise with various intensity when it is in their interest to do so our model has a unique equilibrium exhibiting priee dispersion the model generates predictions about the shape of the price distribution and firms advertising behavior we explore the effects of entry and find that when initial advertising costs at zero level of effort are precisely zero entry drives the equilibrium to the perfectly competitive outcome however when initial marginal advertising costs are positive entry drives prices higher and while the informed consumers almost surely locate competitive prices welfare does not necessarily increase finally we compare the effectiveness of the two informational channels when advertising costs shrink prices become competitive however when search costs shrink prices remain bounded above marginal production costs

balanced matching and labor market equilibrium we analyze equilibrium in a labor market model wherein it takes time for the workers to contact firms workers assumed identical repeatedly sell their labor services all through their work lives choosing their search intensity endogenously identical firms attempt to maximize their steady state profit flow we focus on the importance and consequences of balanced matching in which workers are more likely to contact a larger firm a unique equilibrium is shown to exist wherein all firms offer the same wage and select an employment level at which wage equals marginal product the effect of traditional labor market policies and empirical implications are discussed

truly costly sequential search and oligopolistic pricing we modify the paper of stahl 1989 stahl d o 1989 oligopolistic pricing with sequential consumer search american economic review 79 700 12 by relaxing the assumption that consumers obtain the first price quotation for free when all price quotations are costly to obtain the unique symmetric equilibrium need not involve full consumer participation the region of parameters for which non shoppers do not fully participate in the market becomes larger as the number of shoppers decreases and or the number of firms increases the comparative statics properties of this new type of equilibrium are interesting in particular expected price increases as search cost decreases and is constant in the number of shoppers and in the number of firms welfare falls as firms enter the market we show that monopoly pricing never obtains with truly costly search d 2005 elsevier b v all rights reserved

the perverse effects of wage and price controls in search markets abstract this paper examines the effects of price ceilings and minimum wages on the performance of markets in which agents must invest in costly search to become informed about prices or wages in this context it is found that the market equilibrium may respond to changes in policy instruments in strikingly counterintuitive ways in particular the imposition of price ceilings and minimum wages may respectively result in consumer price increases and wage decreases thus an important implication of our analysis is that when unions fight to increase wages by raising the minimum wage they may paradoxically actually be reducing the average wage of its members

endogenous availability in search equilibrium bargaining power by shopping at two firms and then bringing those firms into competition with one another knowing this firms adjust quoted prices to keep customers from exercising this option we compare equilibrium prices and availability firm profits and customer welfare under duopoly with those that would obtain under monopoly wefind that for low levels of exogenous customer search costs duopolists provide lower prices and lower availability while for high customer search costs duopolists provide the same price but greater availability than would a monopolist

alternative theories of wage dispersion abstract we analyze labor market models where the law of one price fails i e models with equilibrium wage dispersion we begin considering ex ante heterogeneous workers but highlight a problem with this approach if search is costly the market shuts down we then assume homogeneous workers but ex post heterogeneous matches this model is robust to search costs and delivers equilibrium wage dispersion however we prove that the law of two prices holds equilibrium implies at most two wages we explore other models including one combining ex ante and ex post heterogeneity which is robust and delivers more realistic wage dispersion

price dispersion and demand uncertainty evidence from u s scanner data i use the prescott 1975 hotels model to explain variations in price dispersion across items sold by supermarkets in chicago the effect of demand uncertainty on price dispersion is highly significant and quantitatively important my estimates suggest that more than 40 of the cross sectional standard deviation of log prices is due to demand uncertainty i also find that price dispersion measures are negatively correlated with the average price but are not negatively correlated with the revenues from selling the good across stores and weeks and with the number of stores that sell the good temporary sales are modeled as a reaction to unwanted inventories that are accumulated when the realization of demand is low the effect of demand uncertainty on the frequency of temporary sales is also highly significant and quantitatively important items with more demand uncertainty tend to accumulate unwanted inventories more often and tend to have temporary sales more often

revolutionary effects of new information technologies in markets with imperfect information and heterogeneity the information technology affects the rate at which agents meet which affects the distribution of production technologies across firms multiple equilibria may arise because the reservation utility and the lowest production technology in use affect each other the adoption of novel information technologies may then entail a revolution in the sense of a move from an inefficient to equilibrium inefficient production technologies are swiftly moved even in sectors where the new information technology has only recently been introduced the results apply to consumer products labour intermediates and institutions royal economic society 2006

the dynamic instability of dispersed price equilibria abstract we adopt an evolutionary framework to explain price dispersion as a time varying phenomenon by developing a finite strategy analogue of the burdett and judd 1983 price dispersion model we show that all dispersed price equilibria are unstable under the class of perturbed best response dynamics instead numerical simulations using the logit dynamic show that price dispersion manifests itself as a limit cycle we verify that limit cycles persist even when the finite strategy model approaches the original continuous strategy model for a particularly simple case of the model we prove the existence of a limit cycle

price setting price dispersion and the value of money or the law of two prices abstract we study models combining search money price posting and preference shocks we show how these features interact to influence the price level and price dispersion first price posting equilibria exist with valued fiat currency second although both are possible price dispersion is more common than a single price third we prove that generically there cannot be more than two prices we provide intuition for this law of two prices show it also holds in some nonmonetary search models and discuss variations of the assumptions under which it may not hold

information gatekeepers on the internet and the competitiveness of homogeneous product markets we examine the equilibrium interaction between a market for price information controlled by a gatekeeper and the homogenous product market it serves the gatekeeper charges fees to firms that advertise prices on its internet site and to consumers who access the list of advertised prices gatekeeper profits are maximized in an equilibrium where a the product market exhibits price dispersion b access fees are sufficiently low that all consumers subscribe c advertising fees exceed socially optimal levels thus inducing partial firm participation and d advertised prices are below unadvertised prices introducing the market for information has ambiguous social welfare effects

wage differentials employer size and unemployment the unique equilibrium solution to a game in which a continuum of individual employers choose permanent wage offers and a continuum of workers search by sequentially sampling from the set of offers is characterized wage dispersion is a robust outcome provided that workers search while employed as well as when unemployed the unique nondegenerate equilibrium distribution of wage offers is constructed for three cases 1 identical workers and employers 2 identical employers and an atomless distribution of worker supply prices and 3 identical workers and an atomless distribution of job productivities copyright 1998 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

equilibrium steady state price distributions abstract a unique steady state equilibrium is derived in a market where each firm sets its own price and consumers search for price information it is shown that such an equilibrium involves a non degenerate price distribution the relationship between this distribution and the market parameters is revealed

is swedish district heating operating on an integrated market differences in pricing price convergence and marketing strategy between public and private district heating companies abstract the deregulation of the swedish electricity market in 1996 made it possible to operate municipal district heating commercially until that time district heating had been organized mainly as municipal utilities after 1996 district heating is instead expected to function on a market in competitive and integrated markets prices are expected to be equal or converging to find out if district heating operates on an integrated market the differences in price levels price convergence price strategy and business goals among municipal private and state owned district heating companies are investigated price statistics was used along with results from a questionnaire that was answered by representatives for 109 swedish district heating companies the results show that prices among district heating systems do not converge significantly and that variations in prices among municipal systems are larger than among private and state owned systems furthermore despite the fact that district heating is supposed to be commercial a vast majority of district heating companies apply cost based pricing and not market pricing the municipal companies give priority to political goals before financial goals the conclusion is that a swedish integrated market for heat has not yet evolved and some district heating price controlling mechanism is necessary