Tuesday, October 5, 2010
Posted by D. Daniel Sokol
Jose Luis Moraga-Gonzalez (University of Groningen and CESifo), Zsolt Sandor (Universidad Carlos III de Madrid), and Matthijs R. Wildenbeest (Department of Business Economics and Public Policy, Indiana University Kelley School of Business) explore Nonsequential Search Equilibrium with Search Cost Heterogeneity.
ABSTRACT: We generalize the model of Burdett and Judd (1983) to the case where an arbitrary finite number of firms sells a homogeneous good to buyers who have heterogeneous search costs. We show that a price dispersed symmetric Nash equilibrium always exists. Numerical results show that the behavior of prices with respect to the number of firms hinges upon the shape of the search cost distribution: when search costs are relatively concentrated (dispersed), entry of firms leads to higher (lower) average prices.