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Baye Morgan Scholten (2006) - Information Search and Price Dispersion (view source)
Revision as of 15:27, 26 January 2010
, 15:27, 26 January 2010no edit summary
==Key Reference(s)==
*Diamond, P. (1971), "A A Model of Price Adjustment", Journal of Economic Theory, 3, 156-168.*Reinganum, J.F. (1979), "A A Simple Model of Equilibrium Price Dispersion", Journal of Political Economy, 87, 851-858.*Rothschild, M. (1974), "Searching Searching for the Lowest Price When the Distribution of Prices is Unknown", Journal of Political Economy, 82(4), 689-711*Stigler, G. (1961), "The The Economics of Information", Journal Journal of Political Economy, 69 (3), 213-225.
==Introduction==
<center><big>
'''Ed's observation'''
In clearinghouse models, the use of mixed strategies by firms who are indifferent between listing and not, drives many of the price-dispersion results.
</big></center>
===The Rosenthal (1980) Model===
In the Rosenthal (1980) model we suppose:
*<math>\phi = 0\,</math> (i.e. costless listing)
*<math>\L > 0\,</math> (i.e. some loyal customers)
Since <math>\phi=0\,</math>, <math>\alpha=1\,</math> and all firms list at the clearinghouse. The equilibrium distribution of prices is therefore:
<center><math>F(p) = \frac{1}{\alpha} \left ( 1 - \left ( \frac{\frac{n-1}{n}\phi + (v-p)L}{(p-m)S} \right )^{\frac{1}{n-1}} \right )\,</math> on <math>[p_0,v]\,</math></center>
<center><math>F(p) = \left ( 1 - \left ( \frac{(v-p)L}{(p-m)S} \right )^{\frac{1}{n-1}} \right )\,</math> on <math>[p_0,v]\,</math></center>
where:
<center><math>p_0 = m + (v-m)\frac{L}{L+S} + \frac{\frac{n-1}{n}}{L+S}\phi\,</math></center>
<center><math>p_0 = m + (v-m)\frac{L}{L+S}\,</math></center>
