The Price Distribution and Technological Shocks in Markets with Endogenous Search Intensity

16 Pages Posted: 28 Sep 2015

See all articles by Aristotelis Boukouras

Aristotelis Boukouras

University of Leicester

Yu Zhu

Government of Canada - Bank of Canada

Date Written: September 23, 2015

Abstract

We provide a simple model that relates the search intensity of households for products to the price distribution and the wage. Households decide how much time to spend on work and on search for finding better deals in a market where firms charge different prices. Thus, the equilibrium price distribution and the wage depend on the endogenous search intensity and labor supply. Moreover, we show that positive technological shocks, which reduce price posting costs for firms, lead to an increase in labor supply, wages and to the average price, while they lead to a decrease in search effort. These results are consistent with recent empirical findings.

Keywords: price distribution, random-search models, real rigidities, search intensity, technological shocks

JEL Classification: E24, E31

Suggested Citation

Boukouras, Aristotelis and Zhu, Yu, The Price Distribution and Technological Shocks in Markets with Endogenous Search Intensity (September 23, 2015). Available at SSRN: https://ssrn.com/abstract=2666018 or http://dx.doi.org/10.2139/ssrn.2666018

Aristotelis Boukouras (Contact Author)

University of Leicester ( email )

University Road
Leicester, LE1 7RH
United Kingdom

Yu Zhu

Government of Canada - Bank of Canada ( email )

234 Wellington Street
Ontario, Ottawa K1A 0G9
Canada

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