Thursday, December 10, 2009
Posted by D. Daniel Sokol
Ruth G. Gilgenbach (SMU - Econ) writes On Polarized Prices and Costly Sequential Search.
ABSTRACT: This paper presents a homogenous goods duopoly model of costly sequential consumer search with three classes of consumers: costless searchers; moderately costly searchers; and consumers for whom search costs are extremely high--higher than the value they attach to the good. Under certain conditions, the mixed-strategy Nash equilibrium price distribution is one where low and high, but never moderate, prices are charged. In equilibrium, free searchers will always search for both prices, very costly searchers