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The Durability of Information, Market efficiency and the Size of Firms: Search with Repeated Transaction

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  • Fishman, Arthur
  • Rob, Rafael

Abstract

We consider a dynamic model of search where firms are heterogenous with respect to their unit costs of production. For an individual firm, these costs vary from period to period (as a consequence of idiosyncratic technology shocks, perhaps), but for the market as a whole the distribution of costs remains intact. Despite this constancy we show that both the price level as well as the efficiency of market outcomes depends on the variability of costs — at the individual—firm level. We also show how the history of cost realizations segments the set of firms into large and small ones. Hence, firms which are ex—ante identical end up having different size clientele, and different profitabilities. Finally, we show that steady—state equilibria are highly indeterminate.

Suggested Citation

  • Fishman, Arthur & Rob, Rafael, 1992. "The Durability of Information, Market efficiency and the Size of Firms: Search with Repeated Transaction," Foerder Institute for Economic Research Working Papers 275556, Tel-Aviv University > Foerder Institute for Economic Research.
    • Handle: RePEc:ags:isfiwp:275556
    DOI: 10.22004/ag.econ.275556
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    References listed on IDEAS

    as
    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. Rafael Rob, 1985. "Equilibrium Price Distributions," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 52(3), pages 487-504.
    3. Reinganum, Jennifer F, 1979. "A Simple Model of Equilibrium Price Dispersion," Journal of Political Economy, University of Chicago Press, vol. 87(4), pages 851-858, August.
    Full references (including those not matched with items on IDEAS)

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    Keywords

    Financial Economics; Marketing;

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