Price Dispersion in Stationary Networked Markets
35 Pages Posted: 10 Dec 2016 Last revised: 26 Mar 2019
Abstract
Different sellers often sell the same good at different prices. Using a strategic bargaining model, I characterize how the equilibrium prices of a good depend on the interaction between its sellers’ costs, its buyers’ values, and a network capturing various frictions associated with trading it. In contrast to the standard random-matching model of bargaining in stationary markets, I allow agents to strategically choose whom to make offers to, which qualitatively changes how the network shapes prices. As in the random-matching model, the market decomposes into different submarkets, and—in the limit as bargaining frictions vanish—the law of one price holds within but not across them. But strategic choice of partners changes both how the market decomposes into different submarkets and the determinants of each submarket’s price.
Keywords: Price dispersion, non-cooperative bargaining, networked markets, stationary markets, strategic choice of partners
JEL Classification: C78, D43, D85
Suggested Citation: Suggested Citation