price response information and asymmetry of price dispersion abstractin this study we examine how differently gasoline prices in 25 regions of seoul korea respond to asymmetric information between retailers and consumers we estimate the region specific li

comparison shopping as a simultaneous move game this paper analyzes simultaneous move models of comparison shopping it shows that the equilibria in wilde schwartz 1979 can be rationalized as symmetric mixed strategies in an appropriately defined game in which information acquisition costs are endogenous it also shown that in the simultaneous move version of salop stiglitz 1977 nonexistence of equilibrium is not a problem in fact a variety of forms of equilibria emerge in that model pure strategy mixed strategy and blends of the two copyright 1992 by royal economic society

costly arbitrage evidence from closed end funds arbitrage costs lead to large deviations of prices from fundamentals using a sample of closed end funds i find that the market value of a fund is more likely to deviate from the value of its assets 1 for funds with portfolios that are difficult to replicate 2 for funds that pay out smaller dividends 3 for funds with lower market values and 4 when interest rates are high these factors are related to the magnitude of the deviation as opposed to the direction i e whether discount or premium and explain a quarter of cross sectional mispricing variation these findings are consistent with noise trader models of asset pricing

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

prices and qualities a search model recently there has been substantial interest in the study of price and or quality dispersion in markets with costly information many of these studies focus on the problem of price dispersion assuming that the quality is fixed i e homogeneous good the most distinct feature of these models is the way information is gathered information can either be obtained through the purchase of a newspaper at some cost information purchase models or through costly sequential or nonsequential search search models each of these models identifies the conditions under which a rational expectation price dispersion equilibrium will exist in particular using an information purchase model with two classes of consumers with differential information costs salop stiglitz 15 show that equilibrium may be characterized by a high and a low price for a homogeneous good on the other hand wildeschwartz 18 show that there can be price dispersion if consumers have different propensities to search they assume that one class of consumers will shop only once and the other class will shop an exogenously determined number of times before purchasing in their model only certain price distributions are sustainable in equilibrium the salop stiglitz and wilde schwartz results are due to the ex ante heterogeneity of consumer types in an interesting paper burdett judd 3 have established that price dispersion can exist even when consumers are identical due to ex post heterogeneity in information while the price dispersion models are illuminating in explaining the differential prices in the markets they are limited by their abstraction from the quality uncertainty goods of heterogeneous qualities can be and are offered in a recent paper 6 using an information purchase model with two classes of consumers we have analyzed the price and quality equilibria by examining three different environments involving costly information i quality information costly price information costless ii price information costly

a model of residential demand for electricity using a national household sample abstract using a three equation model demand price appliance stock index and a current national household data set this study develops partial and total elasticity estimates for the usa partial elasticities are 0 102 for income and 0 193 for price while total elasticities are 0 410 for income and 1 403 for price

job search with bidder memories this paper revisits the no recall assumption in job search models with take it or leave it offers workers who can recall previously encountered potential employers in order to engage them in bertrand bidding have a distinct advantage over workers without such attachments firms account for this difference when hiring a worker when a worker first meets a firm the firm offers the worker a sufficient share of the match rents to avoid a bidding war in the future the pair share the gains to trade in this case the diamond paradox no longer holds

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

training turnover and search this article explores a model of firm specific training in a job search environment with labor turnover the main substantive finding is a positive association between training and wages when dispersed the article then precisely characterizes how both wage dispersion and firm profitability depend on the flow value b 0 of workers unmatched time it is shown that i for all high values b no equilibrium exists ii for intermediate values b multiple equilibria arise where firms earn zero profits and choose from a general wage distribution iii for all lower values b there is a unique equilibrium with firms earning positive profits and choosing from an atomless set of wages

information sophistication and foreign versus domestic investors performance abstract using an intraday transaction dataset with trader identity we study foreign and domestic investors trading activities and investment performance ahead of open ending events of taiwanese closed end funds simply buying the funds at a discount and holding until open ending generates large abnormal returns all information required to execute this strategy is made public so the events set up natural experiments to examine how investors trade holding constant access to information foreign investors are net buyers ahead of the open endings more than doubling their positions and earning large abnormal returns domestic investors are net sellers while the discounts are still large and forego large abnormal returns the results suggest that investor sophistication in interpreting the same information is potentially an important determinant of investment performance differences across foreign and domestic investors

price dispersion in the lab and on the internet theory and evidence price dispersion is ubiquitous in settings that closely approximate textbook bertrand competition we show that only a little bounded rationality among sellers is needed to rationalize such dispersion a variety of statistical tests based on datasets from two independent laboratory experiments and structural estimates of the parameters of our models suggest that bounded rationality based theories of price dispersion organize the data remarkably well evidence is also presented to suggest that the models are consistent with data from a leading internet price comparison site

number of sellers average prices and price dispersion abstract a variety of models provide differing predictions regarding the effect of an increase in the number of competitors in a market seller density on prices and price dispersion we review different approaches to generating equilibrium price dispersion and then empirically estimate the relationship between seller density average product price and price dispersion in the retail gasoline industry using four unique gasoline price data sets controlling for station level characteristics we find that an increase in station density consistently decreases both price levels and price dispersion across four geographical areas

seasonal variation in residential electricity demand evidence from survey data in this paper we estimate twelve monthly electricity demand equations for households using a detailed microdata set the microdata are based largely on a detailed 1975 survey of us households and incude variables enabling us to measure block price schedules family income socio demographic variables appliance stocks housing characteristics and heating and cooling degree days of single family units we find that price elasticities are higher in absolute value during peak periods of demand income elasticity estimates show no discernible seasonal pattern our disaggregated data also allow us to estimate the seasonal usage patterns of several electricity using appliances the estimates follow expected patterns

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

inflation price dispersion and market integration through the lens of a monetary search model monetary search theory implies that the real effects of inflation via its impact on price dispersion depend on the level of search costs and thus on the level of market integration for less integrated markets the inflation price dispersion nexus is predicted to be asymmetrically v shaped which results in an optimal inflation rate above zero for highly integrated markets with low search costs however the impact of inflation on price dispersion should only be small using price data of the european union member states this paper is the first that tests and confirms these predictions of monetary search theory

declining reservation wages and learning empirical studies of job search strongly suggest that the reservation wages of unemployed job seeking individuals decline with the length of their respective unemployment spells previous explanations of this behaviour based on age effects liquidity constraints and limited unemployment benefits are not adequate we provide a new answer to this question based on the reasonable assumption that workers do not have precise knowledge of the distribution of the prevailing wages an individual model of job search and learning is formulated it is shown that the declining trend of reservation wages naturally arises due to the selection process when search costs are not too small the example of a normal wage offer distribution is analysed and the implications are discussed

opec announcements and their effects on crude oil prices we investigate evidence on the effects of opec announcements on world oil prices by examining announcements from both official conferences and ministerial meetings on major international crudes including the key benchmarks and several other heavy and light grades with data from 1982 to 2008 we use event study methodology and find differentiation in the magnitude and significance of market responses to opec quota decisions under different price bands we also find some weak evidence of differentiation between light and heavy crude grades

appliance specific electricity consumption in slovene households abstract on the basis of a national household survey carried out in 1983 this study presents estimates of electricity use per appliance our estimates of electricity use for space heating water heating and cooking are considerably lower than the engineering estimates the estimates for other electricity using appliances broadly conform with engineering estimates our low estimate of the short run income elasticity is in close agreement with other studies

directed search coordination failure and seller profits an experimental comparison of posted pricing with single and multiple prices we experimentally examine posted pricing and directed search in one treatment capacity constrained sellers post fixed prices which buyers observe before choosing whom to visit in the other firms post both single buyer applied when one buyer visits and multibuyer when multiple buyers visit prices we find based on a 2 2 two buyers and two sellers market and a follow up experiment with 3 and 2 3 markets that multibuyer prices can be lower than single buyer prices or prices in the one price treatment also allowing the multibuyer price does not affect seller profits and increases market frictions

the short run residential demand for electricity the model of short run residential demand for electricity combines price schedule information obtained from the federal energy regulatory commission with household specific data from the 1972 73 consumer expenditure survey to determine the household s level of electricity consumption and relate it to the household s demographic profile and appliance stock the overall short run price elasticity estimate of 0 550 supports existing findings that short run residential electricity demand is price inelastic however the variation in elasticities across end use categories suggests that the overall response is made up of a complex set of responses that vary substantially and significantly across appliances this implies that it may be more efficient to tailor conservation policies to the stock configuration of the population 17 references 6 tables

demand shocks and open economy puzzles abstract we pose good markets frictions on top of an otherwise standard two country international real business cycle irbc model shopping for goods takes effort which prevents perfect matching between customers and producers an increase in search effort implies increased measured productivity demand shocks increase expenditures and search effort simultaneously increasing output consumption productivity and the trade deficit and appreciating the real exchange rate thus we solve the backus smith puzzle and we show that the cross country correlation of consumption is higher than that of output standard irbc models cannot account for these puzzles along with movements in tfp

student portfolios and the college admissions problem we develop a decentralized bayesian model of college admissions with two ranked colleges heterogeneous students and two realistic match frictions students find it costly to apply to college and college evaluations of their applications are uncertain students thus face a portfolio choice problem in their application decision while colleges choose admissions standards that act like market clearing prices enrollment at each college is affected by the standards at the other college through student portfolio reallocation in equilibrium student college sorting may fail weaker students sometimes apply more aggressively and the weaker college might impose higher standards applying our framework we analyse affirmative action showing how it induces minority applicants to construct their application portfolios as if they were majority students of higher caliber

price dispersion inflation and welfare we examine the implications of inflation for both price dispersion and welfare in a monetary search economy in our economy if the degree of buyers incomplete information about prices is fixed both price dispersion and real prices are increasing in inflation as the inflation rate approaches the friedman rule both price dispersion and welfare losses vanish if households choose the number of prices to observe then the optimal inflation rate may exceed the friedman rule as inflation induces search and up to a point raises welfare by eroding market power

multiproduct pricing in oligopoly abstract this paper proposes a two good model of price competition where some consumers visit all shops and others visit only one we find that information frictions lead to price dispersion when the two goods are complements their prices will tend to be negatively correlated so if one is priced high the other will be discounted this finding is supported by some empirical evidence which suggests that simultaneous price discounts of complements are infrequent if the goods are substitutes their prices will be uncorrelated potentially rationalizing the lack of evidence on their co pricing when selling complements retailers earn higher profits than in the one good model through taxing captive consumers with a high overall price tag and attracting shoppers by pricing one of the goods aggressively bundling practices are thus shown to be detrimental to retailers profits

does the law of one price hold in international financial markets evidence from tick data abstract this paper investigates the validity of the law of one price lop in international financial markets by examining the frequency size and duration of inter market price differentials for borrowing and lending services one way arbitrage using a unique data set for three major capital and foreign exchange markets that covers a period of more than seven months at tick frequency we find that the lop holds on average but numerous economically significant violations of the lop arise the duration of these violations is high enough to make it worthwhile searching for one way arbitrage opportunities in order to minimize borrowing costs and or maximize earnings on given funds we also document that such opportunities decline with the pace of the market and increase with market volatility

the reversal of large stock price decreases extremely large negative 10 day rates of return are followed on average by largerthan expected positive rates of return over following days this price adjustment lasts approximately 2 days and is observed in a sample of firms that is largely devoid of methodological problems that might explain the reversal phenomenon while perhaps not representing abnormal profit opportunities these reversals present a puzzle as to the length of the price adjustment period such a slow recovery is inconsistent with the notion that market prices quickly reflect relevant information recent research on stock returns has uncovered a substantial number of empirical findings that are broadly inconsistent with popular asset pricing models for example keim and stambaugh 1985 cross 1973 french 1980 gibbons and hess 1981 and rogalski 1984 find evidence of day ofthe week and weekend effects on stock returns while banz 1981 and reinganum 1983 find evidence of a size effect this paper presents evidence of another empirical puzzle consider the behavior of a firm s rate of return on days after it has experienced a large negative one day rate of return less than say 10 observed daily stock returns after such an extreme event are significantly larger than average on following days for a 10 fall the return above average is 1 773 for the day after and rises cumulatively to 2 215 by the second day this multiple day price adjustment is observed in a sample of firms that is largely devoid of methodological problems that might explain the reversal phenomenon the major interest of this phenomenon is the long recovery period of the stock price reversal such a slow recovery is inconsistent with the notion that market prices fully and quickly reflect relevant information

geographical dispersion of consumer search behaviour abstractthis article investigates whether consumer search behaviour differs across zip codes within the u s as an application daily gasoline price data covering virtually all gas stations within the u s are employed to estimate the distribution of search costs in each zip code the results show that there are significant differences across zip codes regarding the expected number of searches achieved before consumers purchase gasoline in order to have a systematic explanation such differences are further connected to geographic demographic and economic conditions of the zip codes in a secondary analysis the corresponding results imply several strategies for gas stations in order to maximize profits markups suggestions follow for policy makers and regulators to reduce redistributive effects of information barriers across locations

sticky prices and costly credit we develop a theory of money and credit as competing payment instruments then put it to work in applications agents use cash and credit because the former latter is subject to the inflation tax transaction costs frictions that make the choice of payment method interesting also imply equilibrium price dispersion we derive closed form solutions for money demand and show how to simultaneously account for the price change facts cash credit shares in micro data and money interest correlations in macro data the effects of inflation on welfare price dispersion and markups are discussed as are nonstationary equilibria with dynamics in the price distribution

search costs and corporate income tax competition abstract if a small cost applies for learning the corporate tax rules in different countries this can completely eliminate tax competition this modified version of the diamond paradox and can also explain the empirically observed tax cuts cum base broadening

income taxation in a frictional labor market a new model of wage dispersion is used to examine welfare aspects of income taxation the model retains the dynamics of wage posting models while exogenizing search effort therefore allowing more insight into policy issues the results highlight effects that standard analyses do not take into account the optimal income tax should depend on an incidence effect between workers and firms this incidence effect arises from firms trying to lower wages as much as possible an employment tax proves in certain cases to be the best method to encourage labor force participation

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

large market shocks and abnormal closed end fund price behaviour abstract this paper investigates the short term price behaviour of closed end funds following eight large market wide shocks the findings from a sample of 63 funds continuously traded on the london stock exchange indicate that prices overreact relative to equilibrium given by net asset values the speed of reversion in discounts following market wide shocks is slower than that following fund specific shocks of a similar magnitude the post shock persistence in discounts is related more to the ease of arbitrage rather than to liquidity as proxied by fund size or to the speed of recovery in the broader market the discount decays more slowly for those funds that are difficult to arbitrage

an empirical model of wage dispersion with sorting we estimate an equilibrium on the job search model with endogenous search intensity workers differ by skill firms by productivity workers respond to mismatch by intensive search and sorting may result from complementarities in the match level production function the model is estimated on danish matched employer employee data firms are ranked through revealed preference by the fraction of hires that is poached from other firms the poaching rank identification is obtained by firm rank conditional mobility and wage patterns wage variation is decomposed into four sources sorting 40 worker heterogeneity 32 firm heterogeneity 18 and frictional competition 10 a social planner can improve output net of search cost by 1 5 relative to the decentralized solution

price reversals bid ask spreads and market efficiency we examine the behavior of common stock prices after a large change in price occurs during a single trading day and find evidence that the stock market appears to have overreacted especially in the case of price declines however the magnitude of the overreaction is small compared to the bid ask spreads observed for the individual stocks in the sample we interpret this finding as being consistent with a market that is efficient after transactions costs are considered