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Market equilibrium with FSS search

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  • Pedro Cosme Costa Vieira

Abstract

It is acknowledged that in the trading of homogeneous goods there is persistent price dispersion. However, it is theoretically derived that if buyers are optimizers there is no price dispersion. This negative result motivates the emergence of alternative paths in the literature that studies price dispersion. In Burdett and Judd's seminal work, buyers follow the sub-optimal fixed sample size search strategy, FSS. These authors claim that under this sub-optimal strategy there are, ex ante, three points of Nash equilibrium, two of them associated with price dispersion and search. This article shows that these two points of equilibrium with price dispersion are not empirically relevant because they will not be ex post enforced, being unproductive for explaining equilibrium price dispersion using the FSS sub-optimal search strategy.

Suggested Citation

  • Pedro Cosme Costa Vieira, 2004. "Market equilibrium with FSS search," Applied Economics Letters, Taylor & Francis Journals, vol. 11(5), pages 323-324.
    • Handle: RePEc:taf:apeclt:v:11:y:2004:i:5:p:323-324
    DOI: 10.1080/1350485042000221616
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    1. Steven Salop & Joseph Stiglitz, 1977. "Bargains and Ripoffs: A Model of Monopolistically Competitive Price Dispersion," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 44(3), pages 493-510.
    2. Stigler, George J., 2011. "Economics of Information," Ekonomicheskaya Politika / Economic Policy, Russian Presidential Academy of National Economy and Public Administration, vol. 5, pages 35-49.
    3. Varian, Hal R, 1980. "A Model of Sales," American Economic Review, American Economic Association, vol. 70(4), pages 651-659, September.
    4. Burdett, Kenneth & Judd, Kenneth L, 1983. "Equilibrium Price Dispersion," Econometrica, Econometric Society, vol. 51(4), pages 955-969, July.
    5. Diamond, Peter A., 1971. "A model of price adjustment," Journal of Economic Theory, Elsevier, vol. 3(2), pages 156-168, June.
    6. Louis L. Wilde & Alan Schwartz, 1979. "Equilibrium Comparison Shopping," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 46(3), pages 543-553.
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    Cited by:

    1. Pedro Cosme Costa Vieira, 2005. "Multi Product Market Equilibrium with Sequential Search," FEP Working Papers 166, Universidade do Porto, Faculdade de Economia do Porto.

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