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A simple model of price dispersion

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  • Chudik, Alexander
Abstract
This article considers a simple stock-flow matching model with fully informed market participants. Unlike the standard matching literature, prices are assumed to be set ex-ante. When sellers pre-commit themselves to sell their products at an advertised price, the unique equilibrium is characterized by price dispersion due to the idiosyncratic match payoffs (in a marketplace with full information). This provides new insights into the price dispersion literature, which instead commonly assumes that buyers are not perfectly informed and engage in a costly search.

Suggested Citation

  • Chudik, Alexander, 2012. "A simple model of price dispersion," Economics Letters, Elsevier, vol. 117(1), pages 344-347.
    • Handle: RePEc:eee:ecolet:v:117:y:2012:i:1:p:344-347
    DOI: 10.1016/j.econlet.2012.06.003
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    Cited by:

    1. Ofer H Azar, 2015. "A Linear City Model with Asymmetric Consumer Distribution," PLOS ONE, Public Library of Science, vol. 10(6), pages 1-13, June.

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    More about this item

    Keywords

    Price dispersion; Stock-flow matching; Ex-ante price setting; Full information;
    All these keywords.

    JEL classification:

    • C78 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Bargaining Theory; Matching Theory
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection

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