Price distributions and competition

Kenneth Burdett and Eric Smith

No 2009-27, FRB Atlanta Working Paper from Federal Reserve Bank of Atlanta

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.

Date: 2009
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Journal Article: Price distributions and competition (2010)
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