Search Costs and Equilibrium Price Dispersion in Auction Markets

Search costs and equilibrium price dispersion in auction markets

European Economic Review ◽

10.1016/j.euroecorev.2014.06.005 ◽

2014 ◽

Vol 71 ◽

pp. 173-192 ◽

Cited By ~ 9

Author(s):

Matthew R. Backus ◽

Joseph Uri Podwol ◽

Henry S. Schneider

Keyword(s):

Price Dispersion ◽

Search Costs ◽

Equilibrium Price ◽

Auction Markets

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Equilibrium Price Dispersion with Search Regret Disutility

Studies in Microeconomics ◽

10.1177/2321022219887552 ◽

2020 ◽

pp. 232102221988755

Author(s):

Evangelos Rouskas

Keyword(s):

Price Dispersion ◽

Search Costs ◽

Equilibrium Price ◽

Reservation Price ◽

Sequential Search ◽

Price Equilibrium ◽

Search Cost ◽

Equilibrium Search ◽

Search Intensity ◽

Search Equilibrium

I examine an extension of the Burdett and Judd ([1983] . Equilibrium price dispersion. Econometrica, 51[4], 955–970) model whereby the consumers with positive search costs experience search regret disutility. First, I focus on the non-sequential search equilibrium in which the said consumers randomize between searching for one price and searching for two prices. When the disutility is significant (a) the spectrum of parameters for which this dispersed price equilibrium can be sustained widens significantly compared to the setting with no disutility; (b) this dispersed price equilibrium is unique and stable in contrast to the multiplicity of dispersed price equilibria of this type which arise in the original model; and (c) in the stable dispersed price equilibrium of this type the consumers with positive search costs respond to the possibility of search regret disutility by increasing their equilibrium search intensity. Second, I concentrate on the noisy sequential search equilibrium in which the reservation price is endogenous. When the search cost takes relatively high values, then compared to the setting with no disutility (a) the set of parameters for which this dispersed price equilibrium is supported may become significantly smaller; (b) the reservation price decreases; and (c) the consumers with positive search costs choose the same search intensity. JEL Classifications: D41, D83

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