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Sellers Like Clusters

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  • Kultti Klaus

    (University of Helsinki and Helsinki Center of Economic Research (HECER))

Abstract

I study an economy with sellers and buyers. The sellers are capacity constrained and face stochastic demand. They may locate close to each other, cluster, or separately. In the former case the buyers can visit any of them, while in the latter case the buyers can visit only one of them. The sellers post prices which are observed by the buyers who base their decision to contact sellers on the prices. I explicitly derive the equilibrium prices or price strategies in the clustered and in the non-clustered market for an arbitrary distribution of demand. I show that the clustered market often yields higher profits than the non-clustered. Finally, I allow the sellers to choose both the market and prices, and show that the equilibrium market structure features clustering.

Suggested Citation

  • Kultti Klaus, 2011. "Sellers Like Clusters," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 11(1), pages 1-28, December.
    • Handle: RePEc:bpj:bejtec:v:11:y:2011:i:1:n:24
    DOI: 10.2202/1935-1704.1756
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    References listed on IDEAS

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    Cited by:

    1. Godenhielm Mats & Kultti Klaus, 2015. "Directed Search with Endogenous Capacity," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 15(2), pages 211-249, July.
    2. Klaus Kultti & Eeva Mauring, 2014. "Low price signals high capacity," Journal of Economics, Springer, vol. 112(2), pages 165-181, June.
    3. Juha Virrankoski, 2019. "A Cluster and a Search Market CanCoexist," Discussion Papers 128, Aboa Centre for Economics.

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