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A model of sales with a large number of sellers

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  • Rouskas, Evangelos

Abstract

In this paper, I propose a model that can support Varian’s (Varian, 1980) equilibrium search behavior with an arbitrarily large number of sellers, even when the first price observation is costly for the consumers with positive search costs and the search is endogenous. In my model, the consumers with zero search costs have the same low valuation for all sellers’ products, whereas the consumers with positive search costs (i) learn the price and their valuation for the product of each seller after engaging in costly search for the corresponding seller; and (ii) in the pre-search phase, anticipate that the valuation for the product of each seller is high with strictly positive and lower than unity exogenous probability and low with the remaining probability. Conditional on that some reasonable restrictions on the parameters are satisfied, although the number of sellers may grow arbitrarily large, the expected price is bounded above by the low valuation, and the consumers with positive search costs find it most profitable to search once.

Suggested Citation

  • Rouskas, Evangelos, 2020. "A model of sales with a large number of sellers," Mathematical Social Sciences, Elsevier, vol. 104(C), pages 68-70.
    • Handle: RePEc:eee:matsoc:v:104:y:2020:i:c:p:68-70
    DOI: 10.1016/j.mathsocsci.2020.02.002
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    References listed on IDEAS

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    1. Varian, Hal R, 1980. "A Model of Sales," American Economic Review, American Economic Association, vol. 70(4), pages 651-659, September.
    2. Simon P. Anderson & Régis Renault, 2018. "Firm pricing with consumer search," Chapters, in: Luis C. Corchón & Marco A. Marini (ed.), Handbook of Game Theory and Industrial Organization, Volume II, chapter 8, pages 177-224, Edward Elgar Publishing.
    3. Luis C. Corchón & Marco A. Marini (ed.), 2018. "Handbook of Game Theory and Industrial Organization, Volume I," Books, Edward Elgar Publishing, number 16873.
    4. Charlene Cosandier & Filomena Garcia & Malgorzata Knauff, 2018. "Price competition with differentiated goods and incomplete product awareness," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 66(3), pages 681-705, October.
    5. Ding, Yucheng & Zhang, Tianle, 2018. "Price-directed consumer search," International Journal of Industrial Organization, Elsevier, vol. 58(C), pages 106-135.
    6. Il-Horn Hann & Christian Terwiesch, 2003. "Measuring the Frictional Costs of Online Transactions: The Case of a Name-Your-Own-Price Channel," Management Science, INFORMS, vol. 49(11), pages 1563-1579, November.
    7. Luis C. Corchón & Marco A. Marini (ed.), 2018. "Handbook of Game Theory and Industrial Organization, Volume II," Books, Edward Elgar Publishing, number 17978.
    8. Michael R. Baye & John Morgan & Patrick Scholten, 2006. "Information, Search, and Price Dispersion," Working Papers 2006-11, Indiana University, Kelley School of Business, Department of Business Economics and Public Policy.
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    Cited by:

    1. Evangelos Rouskas, 2022. "The effects of entry in a model of sales," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 43(6), pages 2529-2544, September.

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