frictionless commerce a comparison of internet and conventional retailers there have been many claims that the internet represents a new nearly frictionless market our research empirically analyzes the characteristics of the internet as a channel for two categories of homogeneous products books and cds using a data set of over 8 500 price observations collected over a period of 15 months we compare pricing behavior at 41 internet and conventional retail outlets we find that prices on the internet are 9 16 lower than prices in conventional outlets depending on whether taxes shipping and shopping costs are included in the price additionally we find that internet retailers price adjustments over time are up to 100 times smaller than conventional retailers price adjustments presumably reflecting lower menu costs in internet channels we also find that levels of price dispersion depend importantly on the measures employed when we compare the prices posted by different internet retailers we find substantial dispersion internet retailer prices differ by an average of 33 for books and 25 for cds however when we weight these prices by proxies for market share we find dispersion is lower in internet channels than in conventional channels reflecting the dominance of certain heavily branded retailers we conclude that while there is lower friction in many dimensions of internet competition branding awareness and trust remain important sources of heterogeneity among internet retailers

market frictions a unified model of search costs and switching costs it is well known that search costs and switching costs can create market power by constraining the ability of consumers to change suppliers while previous research has examined each cost in isolation this paper demonstrates the benefits of examining the two types of friction in unison the paper shows how subtle distinctions between the two costs can provide important differences in their effects upon consumer behaviour competition and welfare in addition the paper also illustrates a simple empirical methodology for estimating separate measures of both costs while demonstrating a potential bias that can arise if only one cost is considered

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

price setting in online markets does it click using a unique dataset of daily u s and u k price listings and the associated number of clicks for precisely defined goods from a major shopping platform we shed new light on how prices are set in online markets which have a number of special properties such as low search costs low costs of monitoring competitors prices and low costs of nominal price adjustment we document that although online prices are more flexible than offline prices they nevertheless exhibit relatively long spells of fixed prices large size and low synchronization of price changes considerable crosssectional dispersion and low sensitivity to predictable or unanticipated changes in demand conditions qualitatively these patterns are similar to those observed for offline prices a finding that suggests a need for more research on the sources of price rigidities and dispersion

generalised morality and the problem of transition to an impersonal exchange regime a response to platteau this essay addresses the problem of transition from a personalised exchange regime that characterises most ldcs to the more impersonal form of exchange that marks advanced market economies this debate has received impetus from the discussion launched by platteau 1994 in the pages of this journal where he seeks to clarify the social conditions that allow the market system to evolve while the role of private and public order institutions in generating market order is recognised this is regarded as inadequate necessitating the invocation of generalised morality gm to complete the explanation it is argued here that gm does not need to be invoked the article pleads for taking a closer look at the historical role of risk bearing institutions especially financial institutions evidence from the bangladesh rice market is adduced in support of the contention that there exist elements even within a traditional exchange regime that can evolve into modern impersonal forms this is brought out by ex

digital content provision and optimal copyright protection advances in digital technologies have led to an increasing concern about piracy for providers of digital content e g e books games music software videos yet controversies exist over the influence of copyright protection on firm profitability the objective of this paper is to provide an alternative rationale for the growing anti protection trend and to investigate optimal copyright enforcement and quality provision in a monopoly setting the proposed economic mechanism centers on the influence of copyright protection on consumer search when consumers can get to know the firm s actions e g price quality only after costly search we show that more stringent copyright protection can induce the consumers to rationally expect lower ex post surplus thus exerting a negative strategic effect on the consumers willingness to search this strategic effect may outweigh the positive main effect on the relative attractiveness of the authorized versus the pirated product which can hence explain the opti

prices and price dispersion on the web evidence from the online book industry using data collected between august 1999 and january 2000 covering 399 books we examine pricing by thirty two online united states based bookstores at the aggregate level we find that both advertising and competitive structure had the predicted effects more competition led to lower prices and to lower price dispersion holding competitive structure constant more widely advertised items also had lower prices at the firm level we observe considerable heterogeneity in behavior firms had differentiated or attempted to differentiate on dimensions such as brand price and selection

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

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

search with learning for differentiated products evidence from e commerce this article provides a method to estimate search costs in a differentiated product environment in which consumers are uncertain about the utility distribution consumers learn about the utility distribution by bayesian updating their dirichlet process prior beliefs the model provides expressions for bounds on the search costs that can rationalize observed search and purchasing behavior using individual specific data on web browsing and purchasing behavior for mp3 players sold online we show how to use these bounds to estimate search costs as well as the parameters of the utility distribution our estimates indicate that search costs are sizable we show that ignoring consumer learning while searching can lead to severely biased search cost and elasticity estimates

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

how much is a dollar worth tipping versus equilibrium coexistence on competing online auction sites theory models of platform competition predict that prices and buyer seller ratios should be approximately equal on coexisting auction sites using field experiments on ebay and yahoo auctions we find evidence that is inconsistent with equilibrium hypotheses and suggest that the market is tipping prices on ebay are consistently 20 70 percent higher than those on yahoo and ebay attracts two additional buyers per seller on yahoo prices and bidders counts are unaffected by the auction ending rule various differences between the sites cannot account for the magnitude of these disparities however a model of imitation dynamics can rationalize our findings

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

price beliefs and experience do consumers beliefs converge to empirical distributions with repeated purchases we use data on consumers subjective beliefs about the distribution of prices in an online marketplace to investigate two questions of interest first when consumers face price uncertainty to what extent do their beliefs about the distribution of prices reflect the actual empirical price distribution second do consumers learn about features of the empirical distribution through experience using reported expectations for online textbook prices from a survey of 1224 college students we find that consumers with no prior experience in purchasing textbooks online tend to expect online prices to be higher than what is observed empirically however consumers with more experience in the marketplace generally have more accurate beliefs about the price distribution which is consistent with learning

search costs and equilibrium price dispersion in auctions a leading explanation for price dispersion in posted price markets is search costs we incorporate this insight into a model of competing second price auctions similar to ebay by doing so we extend the narrow literature on competing auctions to capture price dispersion and grow the already large literature on price dispersion to include auctions we provide evidence on search costs and price dispersion using data collected from ebay identifying search costs by exploiting a discontinuity in the visibility of auctions due to ebay s search tool 1 we thank aaron bodoh creed greg lewis steve tadelis and various seminar participants for helpful comments nate woody for programming assistance and the cornell university institute for social sciences for financial support the views expressed herein are solely those of the authors and do not necessarily reflect those of the u s department of justice 1

an equilibrium model of search unemployment this paper develops a simple general equilibrium model with sequential search in which a nondegenerate wage offer distribution is endogenously determined we use this model to analyze the comparati

dynamic price competition in auto insurance brokerage we analyze brazilian data on auto insurance and document that a about 20 of policies are sold without brokerage commission b over 40 are sold at the highest fee allowed and c the remaining contracts are associated with a spread out distribution of fees static models cannot rationalize these findings we develop a dynamic model of price competition with search and switching costs that reproduces them we use the equilibrium structure to estimate the model parameters and infer the brokers expected earnings the frequency that insurees switch brokers and the counterfactual effects of a price ceiling policy

estimation of search frictions in the british electricity market this paper studies consumer search and pricing behaviour in the british domestic electricity market following its opening to competition in 1999 we develop a sequential search model in which an incumbent and an entrant group compete for consumers who nd it costly to obtain information on prices other than from their current supplier we use a large data set on prices and input costs to structurally estimate the model our estimates indicate that consumer search costs must be relatively high in order to rationalize observed pricing patterns we confront our estimates with observed switching behaviour and

the morphology of price dispersion this paper is a study of the shape and structure of the distribution of prices at which an identical good is sold in a given market and time period we find that the typical price distribution is symmetric and leptokurtic with a standard deviation between 19 and 36 only 10 of the variance of prices is due to variation in the expensiveness of the stores at which a good is sold while the remaining 90 is due in approximately equal parts to differences in the average price of a good across equally expensive stores and to differences in the price of a good across transactions at the same store we show that the distribution of prices that households pay for the same bundle of goods is approximately normal with a standard deviation between 9 and 14 half of this dispersion is due to differences in the expensiveness of the stores where households shop while the other half is mostly due to differences in households choices of which goods to purchase at which stores we find that households with fewer employed members pay lower prices and do so by visiting a larger number of stores rather than by shopping more frequently

search and price dispersion in online grocery markets abstract consumers often purchase multiple products at a time from retailers creating multi product incentives for search in this paper we consider how product variety affects consumer search intensity and the dispersion of prices in multi product retail markets we employ online grocery pricing data from four large retailers in the uk to estimate search costs and equilibrium price dispersion for food products under circumstances where i consumers search for single products and ii consumers search for multiple products at once we compare estimates in each case between a model in which utility increases with product variety and a model in which utility is not a function of variety relative to our preferred specification with variety effects in utility we find estimates of both search cost and search frequency to be biased upwards in single product settings when variety effects are ignored however we find estimates of search costs are biased upwards while search frequency is biased downwards in multi product settings when variety effects in utility are ignored

dividing online and offline a case study every new method of trade offers an opportunity for economic agents to compare its costs and benefits relative to the status quo such comparison motivates sorting across market segments and reshapes the whole marketplace the internet provides an excellent example it introduces substantial search cost savings over brick and mortar retail stores but imposes new obstacles for sellers to convey quality using sports card trading as a case study we provide empirical evidence on 1 the sorting of product quality between the online and offline segments 2 the changes for retail outlets after the internet came into place and 3 how supporting industries such as professional grading and card manufacturing adapted to take advantage of the new market copyright 2007 wiley blackwell

identification and estimation of online price competition with an unknown number of firms this paper considers identification and estimation of a general model for online price competition we show that when the number of competing firms is unknown the underlying parameters of the model can still be identified and estimated employing recently developed results on measurement errors we illustrate our methodology using uk data for personal digital assistants and employ the estimates to simulate competitive effects our results reveal that heightened competition has differential effects on the prices paid by different consumer segments

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

is more competition always better an experimental study of extortionary corruption using a laboratory experiment we assess whether increasing competition among public officials reduces extortionary corruption we find that increasing the number of providers has no effect on bribe demands when citizens search costs are high but it increases corruption when search costs are low the effect is absent in a parallel setting framed as a standard market which we attribute to citizens using a nonsequential search strategy as opposed to sequential search in the corruption setting we conclude that efforts to reduce search costs such as infrastructure investments are preferable to anti corruption policies aimed at increasing the number of providers jel d73 d49 c91

nonsequential search equilibrium with search cost heterogeneity we generalize the model of burdett and judd 1983 to the case where an arbitrary finite number of firms sells a homogeneous good to buyers who have heterogeneous search costs we show that a price dispersed symmetric nash equilibrium always exists numerical results show that the behavior of prices and consumer surplus with respect to the number of firms hinges upon the nature of search cost dispersion when search costs are relatively concentrated entry of firms leads to lower average prices and greater consumer surplus however for relatively dispersed search costs the mean price goes up and consumer surplus may decrease with the number of firms

the bright side of loss aversion in dynamic and competitive markets a well established phenomenon of consumer buying behavior is that consumers evaluate prices relative to a reference point and exhibit loss aversion i e their propensity to buy is more negatively affected by prices above the reference point than it is positively affected by prices below the reference point the objective of this paper is to analytically examine how the competitive strategy and profitability of firms are affected by the presence of consumer loss aversion in the price dimension although we assume that consumer loss aversion increases consumer propensity to search for lower prices we find that it does not necessarily lead to lower prices or profits when firms compete over multiple periods and when the consumer reference price in subsequent periods is affected by current prices specifically consumer loss aversion could lead to higher prices and profits when consumer valuation is sufficiently high relative to search costs and the proportion of consumers with positive search costs is in an intermediate range we also show that when forward looking firms incorporate the negative effect of price promotions on future profits the equilibrium range of price promotions may actually increase

oligopolistic pricing with sequential consumer search n identical stores compete by choosing prices for a homogeneous good with constant marginal costs consumers search sequentially with perfect recall for the lowest price one class of consumers called shoppers have zero search costs while all other consumers have a positive search cost c there is a unique symmetric nash equilibrium price distribution with the property that it changes smoothly from marginal cost pricing when all consumers are shoppers and or c 0 and monopoly pricing when no consumers are shoppers remarkably as the number of stores increases the nash equilibrium becomes more monopolistic copyright 1989 by american economic association

the optimal extraction rate of a natural resource under uncertainty abstract the objective of this paper is to derive the optimal rate of depletion of non renewable natural resource by a monopolist under uncertainty conditions on the evolution of the reserve stock of that natural resource

search frictions and market power in negotiated price markets we provide a framework for empirical analysis of negotiated price markets using mortgage market data and a search and negotiation model we characterize the welfare impact of search frictions and

gasoline price dispersion and consumer search evidence from a natural experiment the vast majority of empirical studies examining the link between consumer search and price dispersion focus on how changes in consumer search impact price dispersion this article does the reverse it examines how a shock to price dispersion impacts consumer search a direct measure of search is used and an exogenous shock to price dispersion is found in a refinery fire that caused decades old retail gasoline price cycles and the nonlinear high frequency price dispersion pattern generated by them to stop identifying effects from this shock the results show a substantial response of consumer search to changes in price dispersion

a model of search with price discrimination abstract we introduce observable heterogeneity across buyers into a model of simultaneous search buyers differences are informative about their willingness to search giving rise to price discrimination even if they all have the same willingness to pay we analyze and compare equilibrium outcomes when price discrimination is allowed and when it is not we find that the price comparison across consumers as well as the effects of banning price discrimination critically depend on the elasticity of the search cost distribution interestingly for normally distributed search costs there is an inverted u shape relationship between prices and buyers size similarly a ban on price discrimination hurts small and large buyers to the benefit of the medium size ones

semi nonparametric estimation of consumer search costs this paper studies the estimation of the distribution of non sequential search costs we show that the search cost distribution is identified by combining data from multiple markets with common search technology but varying consumer valuations firms costs and numbers of competitors to exploit such data optimally we provide a new method based on semi nonparametric estimation we apply our method to a dataset of online prices for memory chips and find that the search cost density is essentially bimodal such that a large fraction of consumers searches very little whereas a smaller fraction searches a relatively large number of stores copyright c 2012 john wiley sons ltd

consumer search costs and preferences on the internet we conduct an empirical analysis of consumer preferences and search costs on an internet platform using data from a major french platform priceminister we show descriptive evidence of substantial price dispersion among adverts for the same product of consumers often not choosing the cheapest advert and sometimes choosing an advert dominated in price and non price characteristics by another available advert we consider a sequential search model where consumers sample adverts in an endogenous order based on their preferences and search costs we show that the optimal search and purchase strategy can be characterized by a set of inequalities which can feasibly be tested on transaction and advert data this allows us to estimate for each transaction a set of preference and search cost parameter values thus allowing for flexible consumer heterogeneity in preferences and search costs the estimated model can then describe a wide range of consumer search and purchase behaviours we find that the model can explain almost all transactions in the data and requires non zero preferences and search costs for at least 50 and 22 respectively of observations we also find evidence of heterogeneous and sometimes substantial search costs

an empirical model of search with vertically differentiated products this paper presents a nonsequential search model that allows for vertical product dierentiation in the unique symmetric equilibrium firms with dierent characteristics draw utilities from a common utility distribution because the firms dier in their characteristics this leads to dierent price distributions the model therefore provides a theoretical rationale for explaining price dispersion as a result of quality dierences and search behavior of consumers together using the equilibrium conditions derived from the model it is shown how to estimate search costs by maximum likelihood using only price data a data set on prices from dutch supermarkets reveals that the amount of search has decreased over the sampling period moreover ignoring vertical product dierentiation results in an overestimation of search costs

market diffusion with two sided learning we analyze the diffusion of a new product of uncertain value in a duopolistic market both sides of the market buyers and sellers learn the true value of the new product from experiments with it buyers have heterogeneous preferences over the products and sellers compete in prices the pricing policies and market shares in the unique markov perfect equilibrium are obtained explicitly the dynamics of the equilibrium market shares display excessive sales of the new product relative to the social optimum in early stages and too low sales later on the diffusion path of a successful product is s shaped

search costs and equilibrium price dispersion in auction markets abstract a leading explanation for price dispersion in posted price markets is search costs we incorporate this insight into a model of competing second price auctions similar to ebay by doing so we extend the narrow literature on competing auctions to capture price dispersion and grow the already large literature on price dispersion to include auctions we provide evidence on search costs and price dispersion using data collected from ebay identifying search costs by exploiting a discontinuity in the visibility of auctions due to ebay s search tool

diagnosing consumer confusion and sub optimal shopping effort theory and mortgage market evidence mortgage loans are leading examples of transactions where experts on one side of the market take advantage of consumers lack of knowledge and experience we study the compensation that borrowers pay to mortgage brokers for assistance from application to closing two findings support the conclusion that confused borrowers overpay for brokers services i a model of effective shopping shows that bor rowers sacrifice at least 1 000 by shopping from too few brokers ii borrowers who compensate their brokers with both cash and a commission from the lender pay twice as much as similar borrowers who pay no cash jel d12 d14 g21 we study a large and financially complex expenditure that the majority of consumers make only a few times in their lives the payment for mortgage origination services in these transactions information is not only imperfect but traditional market practices have likely contributed to consumer confusion these payments range from 0 to 30 000 for mortgages of normal size mortgage brokers receive payments from both borrowers and from wholesale lenders on most loans broker fees paid in cash by the borrower are usually broken down into more than a dozen individual items such as origination fee discount points funding fee and doc prep in addition to these cash payments about half of the value that the bor rower transfers to the broker takes the form of a payment from the wholesale lender to the mortgage broker the borrower bears the burden of this part of the payment in the form of a higher interest rate on the loan these payments compensate mortgage brokers for arranging mortgage loans we stress that this paper is about how and how much borrowers pay their brokers for origination services the broker is an administrator of the process of loan origination the broker bears none of the risk of default on the mortgage so that risk is not a determinant of the broker s compensation under standard theories of pricing because consumers enter the mortgage market infrequently and because features of the market make it difficult to learn the best price mortgage origination pricing

search costs and efficiency do unemployed workers search enough many labor market policies affect the marginal benefits and costs of job search the impact and desirability of such policies depend on the distribution of search costs in this paper we provide an equilibrium framework for identifying the distribution of search costs and we apply it to the dutch labor market in our model the wage distribution job search intensities and firm entry are simultaneously determined in market equilibrium given the distribution of search intensities which we directly observe we calibrate the search cost distribution and the flow value of non market time these values are then used to derive the socially optimal firm entry rates and distribution of job search intensities from a social point of view some unemployed workers search too little due to a hold up problem while other unemployed workers search too much due to coordination frictions and rent seeking behavior our results indicate that jointly increasing unemployment benefits and the sanctions for unemployed workers who do not search at all can be welfare improving

the q s s pricing rule we introduce menu costs in the search theoretic model of imperfect competition of burdett and judd when menu costs are not too large the equilibrium is such that sellers follow a q s s pricing rule according to the rule a seller lets inflation erode the real value of its nominal price until it reaches some point s then the seller pays the menu cost and resets the real value of its nominal price to a point randomly drawn from a distribution with support s q where s s q a q s s equilibrium differs with respect to a standard s s equilibrium 1 in a q s s equilibrium sellers sometimes keep their nominal price constant to avoid paying the menu cost other times because they are indifferent to changes in the real value of their price an exploratory calibration reveals that menu costs account less than half of the observed duration of nominal prices 2 in a q s s equilibrium higher inflation leads to higher real prices as sellers pass onto buyers the cost of more frequent price adjustments and to lower welfare

search for differentiated products identification and estimation when consumers search for differentiated products a given search decision can be explained either by low search cost or by low tastes for the set of products already found we propose an identification strategy that allows to estimate the search cost distribution in the presence of unobserved tastes the required data takes the form of conditional search decisions observations of search actions combined with previously observed product displays we develop an application using clickstream data from a hotel search platform estimates of price elasticity of demand in the search model differ from those in the static model reflecting the bias due to endogeneity of search generated choice sets

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

product differentiation search costs and competition in the mutual fund industry a case study of s p 500 index funds we investigate the role that non portfolio fund differentiation and information search frictions play in creating two salient features of the mutual fund industry the large number of funds and the sizeable dispersion in fund fees in a case study we find that despite the financial homogeneity of s p 500 index funds this sector exhibits the fund proliferation and fee dispersion observed in the broader industry we show how extra portfolio mechanisms explain these features these mechanisms also suggest an explanation for the puzzling late 1990s shift in sector assets to more expensive and often newly entered funds an influx of highinformation cost novice investors

a structural model of the retail market for illicit drugs we estimate a model of illicit drugs markets using data on purchases of crack cocaine buyers are searching for high quality drugs but they determine drugs quality i e their purity only after consuming them hence sellers can rip off first time buyers or can offer higher quality drugs to induce buyers to purchase from them again in equilibrium a distribution of qualities persists the estimated model implies that if drugs were legalized in which case purity could be regulated and hence observable the average purity of drugs would increase by approximately 20 percent and the dispersion would decrease by approximately 80 percent moreover increasing penalties may raise the purity and affordability of the drugs traded by increasing sellers relative profitability of targeting loyal buyers versus first time buyers

strategic complementarities and search market equilibrium abstract in this paper we apply supermodular game theory to the equilibrium search literature with sequential search we identify necessary and sufficient conditions for the pricing game to exhibit strategic complementarities and prove existence of equilibrium we then show that price dispersion is inherently incompatible with strategic complementarities in the sense that the diamond paradox obtains when firms are identical and is robust within the class of search cost densities that are small near zero and support strategic complementarities we also show that a major criticism of the literature that agents act as if they know the distribution of prices can be justified in the sense of convergent best response dynamics

hysteresis price acceptance and reference prices the existence of price thresholds in grocery retailing is well documented most authors explain the existence of price thresholds using assimilation contrast theory adaptation level theory or prospect theory however each of these theories is untenable if consumers are believed to behave rationally we offer a theoretical explanation grounded in real options theory rot and economic hysteresis we test the rot hypothesis against three plausible alternatives using a maximum likelihood friction model that we augment for unobserved heterogeneity our findings support the rot hypothesis and suggest that the existence of price thresholds in aggregate data are driven by a common recognition of real option values which do not disappear with the inclusion of consumer heterogeneity

market power price adjustment and inflation we study the responses of real and nominal prices to random flutuations in costs and money growth using a monetary search economy in which there are no costs or temporal restrictions on sellers ability to change prices the economy exhibits a form of price stickiness in that the price level may react incompletely to either type of shock as a result of endogenous changes in the average mark up driven by movements in consumers search intensity the average mark up falls as inflation rises a finding consistent with emprical observations as a result of this reduction in market power prices become more responsive to shocks as inflation rises our results are consistent with empirical findings that the degree of price adjustment in response to both cost and money growth shocks is increasing in the average rate of inflation that the variance of inflation increases with its average level and that positive and negative shocks to money growth have asymmetric effects

true monopolistic competition as a result of imperfect information the paper restates hart s 1985a 1985b definition of large group monopolistic competition distinguishes it from oligopolistic competition and raises the question of whether there are reasonable circumstances that give rise to true monopolistic competition as defined the purpose is to show that consumers imperfect information may create conditions that will turn an otherwise oligopolistic market into a truly monopolistically competitive one