Saturday, December 5, 2009
Posted by D. Daniel Sokol
Ken Burdett (Penn - Econ) and Eric Smith (Federal Reserve Bank of Atlanta) explain Price distributions and competition.
ABSTRACT: Considerable evidence demonstrates that significant dispersion exists in the prices charged for seemingly homogeneous goods. This paper adopts a simple, flexible equilibrium model of search to investigate the way the market structure influences price dispersion. Using the noisy search approach, the paper demonstrates the effects of having a single large, price-leading firm with multiple outlets and a competitive fringe of small firms with one retail outlet each.