Price Dispersion with Directed Search

47 Pages Posted: 23 Dec 2014

See all articles by Gabriele Camera

Gabriele Camera

Chapman University - Economic Science Institute; University of Bologna - Dept. of Economics

Cemil Selcuk

DePaul University

Date Written: December 22, 2014

Abstract

We present a model that generates empirically plausible price distributions in directed search equilibrium. There are many identical buyers and many identical capacity-constrained sellers who post prices. These prices can be renegotiated to some degree and the outcome depends on the number of buyers who want to purchase the good. In equilibrium all sellers post the same price, demand is randomly distributed, and there is sale price dispersion. Prices and distributions depend on market tightness and on the properties of renegotiation outcomes. In a labor market context, the model generates a strong empirical prediction. If workers can renegotiate the posted wage, then the model predicts a positively skewed and realistic-looking density function of realized wages when the mean number of job-seekers per vacancy is large.

Keywords: Advertising, Directed search, Price commitments, Frictions, Wage dispersion

JEL Classification: C780, D390, D490, E390

Suggested Citation

Camera, Gabriele and Selcuk, Cemil, Price Dispersion with Directed Search (December 22, 2014). Available at SSRN: https://ssrn.com/abstract=2541991 or http://dx.doi.org/10.2139/ssrn.2541991

Gabriele Camera (Contact Author)

Chapman University - Economic Science Institute ( email )

Orange, CA 92866
United States

HOME PAGE: http://www1.chapman.edu/~camera/

University of Bologna - Dept. of Economics ( email )

Strada Maggiore 45
Bologna, 40125
Italy

Cemil Selcuk

DePaul University ( email )

1 East Jackson Blvd.
Chicago, IL 60604
United States

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