Document Type
Discussion Paper
Publication Date
3-17-2020
CFDP Number
2224R2
CFDP Revision Date
November 24, 2020
CFDP Pages
52
Journal of Economic Literature (JEL) Code(s)
D41, D42, D43, D83
Abstract
Consider a market with identical firms offering a homogeneous good. A consumer obtains price quotes from a subset of firms and buys from the firm offering the lowest price. The “price count” is the number of firms from which the consumer obtains a quote. For any given ex ante distribution of the price count, we derive a tight upper bound (under first-order stochastic dominance) on the equilibrium distribution of sales prices. The bound holds across all models of firms’ common-prior higher-order beliefs about the price count, including the extreme cases of full information (firms know the price count) and no information (firms only know the ex ante distribution of the price count). A qualitative implication of our results is that a small ex ante probability that the price count is equal to one can lead to a large increase in the expected price. The bound also applies in a large class of models where the price count distribution is endogenously determined, including models of simultaneous and sequential consumer search.
Recommended Citation
Bergemann, Dirk; Brooks, Benjamin; and Morris, Stephen, "Search, Information, and Prices" (2020). Cowles Foundation Discussion Papers. 2585.
https://elischolar.library.yale.edu/cowles-discussion-paper-series/2585