scholarly journals Simultaneous Search for Differentiated Products: The Impact of Search Costs and Firm Prominence

2020 ◽  
Author(s):  
José L Moraga-González ◽  
Zsolt Sándor ◽  
Matthijs R Wildenbeest

Abstract We extend the literature on simultaneous search by allowing for differentiated products and search cost heterogeneity. We show conditions under which a symmetric price equilibrium exists. We provide a necessary and sufficient condition under which an increase in search costs may result in a lower, equal or higher equilibrium price. We extend this analysis to the case with more than two firms. The effects of prominence on equilibrium prices are also studied. The prominent firm charges a higher price than the non-prominent firm and both their prices are below the symmetric equilibrium price. Consequently, market prominence increases the consumers’ surplus.

2020 ◽  
pp. 232102221988755
Author(s):  
Evangelos Rouskas

I examine an extension of the Burdett and Judd ([1983] . Equilibrium price dispersion. Econometrica, 51[4], 955–970) model whereby the consumers with positive search costs experience search regret disutility. First, I focus on the non-sequential search equilibrium in which the said consumers randomize between searching for one price and searching for two prices. When the disutility is significant (a) the spectrum of parameters for which this dispersed price equilibrium can be sustained widens significantly compared to the setting with no disutility; (b) this dispersed price equilibrium is unique and stable in contrast to the multiplicity of dispersed price equilibria of this type which arise in the original model; and (c) in the stable dispersed price equilibrium of this type the consumers with positive search costs respond to the possibility of search regret disutility by increasing their equilibrium search intensity. Second, I concentrate on the noisy sequential search equilibrium in which the reservation price is endogenous. When the search cost takes relatively high values, then compared to the setting with no disutility (a) the set of parameters for which this dispersed price equilibrium is supported may become significantly smaller; (b) the reservation price decreases; and (c) the consumers with positive search costs choose the same search intensity. JEL Classifications: D41, D83


2013 ◽  
Vol 13 (1) ◽  
pp. 191-213 ◽  
Author(s):  
Roman Chuhay

AbstractIn this article, we consider the impact of personal contacts on the labor market outcome. Unlike previous studies, we do not assume any particular network structure or vacancies communication protocol. Instead, we state three general properties of matching functions that allow us to establish the existence and uniqueness of equilibrium and characterize the impact of social ties on the labor market. In particular, we show that a monotonically increasing matching function in socialization level is a necessary and sufficient condition for having monotonically decreasing unemployment and increasing wage and market tightness. However, the same does not apply to vacancy rate. We establish a condition under which a monotonically increasing matching function produces a vacancy rate that first increases in socialization level, but then decreases.


2004 ◽  
Vol 21 (03) ◽  
pp. 393-405
Author(s):  
ZHIPING CHEN

For the asset market with finite numbers of investors whose utility functions are general concave functions, we derive a necessary and sufficient condition for the existence and uniqueness of the nonnegative equilibrium price vector that clears the asset market, through considering the expected utility maximization problem under the assumption that the joint distribution of risky assets' returns is an elliptical distribution. An explicit formula for the equilibrium price is given. We also discuss the economic implication of the given condition and demonstrate that our necessary and sufficient condition can be regarded as a necessary condition to maintain the stability of the asset market. These results extend some results about the equilibrium analysis of the asset market.


2020 ◽  
Vol 40 (1) ◽  
pp. 75
Author(s):  
Julia P. Araujo ◽  
Mauro Rodrigues

<p>Plano Real put an end to hyperinflation in 1994 and significantly altered price-setting behavior in Brazil. This paper investigates the impact of Plano Real on search frictions. We estimate a nonsequential search model for homogeneous goods to structurally retrieve consumers' search costs. The dataset comprises 11,673 store-level price quotes collected from 1993 to 1995 by FIPE to calculate the Consumer Price Index (CPI) in the city of São Paulo. The strategy consists of using Plano Real as a structural breakpoint in the data. We estimate the model splitting the data into before (Jan-93 to Jun-94) and after (Aug-94 to Dec-95) the plan, and we find evidence on first-order stochastic dominance of the search-cost distribution of the former into the latter; that is, search costs are higher during hyperinflation. The majority of consumers search only once or twice before buying an item, but this share is marginally higher during hyperinflation (84% vs 79%). In addition, after Plano Real, a larger share of consumers are willing to quote prices in all stores before committing to a purchase. We also document evidence of the effect of the plan on shrinking price-cost margins. When searching is less costly, stores lose market power.</p>


2019 ◽  
Vol 14 (3) ◽  
pp. 1015-1061
Author(s):  
Pak Hung Au

An agent searches sequentially for advice from multiple experts concerning the payoff of taking an operation. After incurring a positive search cost, the agent can consult an expert whose interest is partially aligned with him. There are infinitely many experts, each has access to an identically and conditionally independent signal structure about the payoff, and each makes a recommendation after observing the signal realization. We find that the experts face a loser's curse, which could hamper the quality of information transmission. This effect is illustrated by studying the limit of equilibria with vanishing search cost. The main findings are as follows. First, there are signal structures with which both the agent's payoff and social welfare are strictly lower than the alternative scenario in which the agent commits to consulting a single expert only. Second, under some signal structures, no information can be transmitted in equilibrium, even though informative recommendation is possible if the agent could commit to a single expert. Finally, we identify the necessary and sufficient condition that ensures perfect information aggregation in the limit.


2004 ◽  
Vol 94 (3) ◽  
pp. 691-711 ◽  
Author(s):  
Josh Lerner ◽  
Jean Tirole

The paper builds a tractable model of patent pools, agreements among patent owners to license sets of their patents. It provides a necessary and sufficient condition for patent pools to enhance welfare and shows that requiring pool members to be able to independently license patents matters if and only if the pool is otherwise welfare reducing. The paper allows patents to differ in importance, asymmetric blocking patterns, and licensors to also be licensees. We undertake some initial exploration of the impact of pools on innovation. The analysis has broader applicability than pools, being relevant to a number of co-marketing arrangements.


2008 ◽  
Vol 98 (4) ◽  
pp. 1245-1268 ◽  
Author(s):  
Paul Heidhues ◽  
Botond Kőszegi

We modify the Salop (1979) model of price competition with differentiated products by assuming that consumers are loss averse relative to a reference point given by their recent expectations about the purchase. Consumers' sensitivity to losses in money increases the price responsiveness of demand—and hence the intensity of competition—at higher relative to lower market prices, reducing or eliminating price variation both within and between products. When firms face common stochastic costs, in any symmetric equilibrium the markup is strictly decreasing in cost. Even when firms face different cost distributions, we identify conditions under which a focal-price equilibrium (where firms always charge the same “focal” price) exists, and conditions under which any equilibrium is focal. (JEL D11, D43, D81, L13)


Author(s):  
Emma Hutchinson ◽  
Peter W Kennedy ◽  
Cristina Martinez

Abstract We show that a production subsidy to low-carbon energy can have a perverse effect on emissions. The subsidy causes a shift in the composition of production towards the cleaner energy, but it also causes an offsetting consumption effect: energy consumption rises because the subsidy causes the equilibrium price of energy to fall. The net effect on emissions can be positive if the low-carbon energy is not significantly cleaner than the high-carbon energy it displaces. We derive a necessary and sufficient condition for this perverse effect in the context of a competitive energy market. We calibrate an example for an ethanol subsidy in the U.S. and find that this policy is likely to cause an increase in carbon emissions for most plausible parameter values.


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