Can Price Dispersion Be Supported Solely by Information Frictions?

20 Pages Posted: 22 Nov 2014 Last revised: 5 Nov 2019

Date Written: October 4, 2019

Abstract

Yes, but one needs to assume that consumers know the realized price distribution, and that they do not know which firm has what price. Even with identical consumers and identical firms, if firms set prices in a first stage, and if consumers search sequentially in a second stage, then price dispersion arises in the form of a mixed strategy subgame perfect Nash Equilibrium. In contrast to Burdett and Judd (1983), price quotes are not required to be “noisy.” Moreover, actual search is predicted to be nontrivial.

Keywords: Price dispersion, Information frictions, Sequential search

JEL Classification: L13,D83, D21, D43

Suggested Citation

Tudón, José, Can Price Dispersion Be Supported Solely by Information Frictions? (October 4, 2019). Available at SSRN: https://ssrn.com/abstract=2528234 or http://dx.doi.org/10.2139/ssrn.2528234

José Tudón (Contact Author)

ITAM Business School ( email )

Av. Camino a Santa Teresa 930
Colonia Heroes de Padierna
Mexico City, Magdalena Contreras 10700
Mexico

HOME PAGE: http://jtudon.com

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