IDEAS home Printed from https://ideas.repec.org/p/van/wpaper/vuecon-13-00012.html
   My bibliography  Save this paper

Price dispersion and efficiency

Author

Listed:
  • Benjamin Eden

    (Vanderbilt University)

Abstract

The paper distinguishes between rigid price and flexible price versions of the Prescott (1975) “hotels” model. I focus on two dynamic models that allow for storage: The Bental and Eden (1993) model of all year round goods and the more recent Deneckere and Peck (2012) model of seasonal goods. The formulation follows the standard competitive analysis tradition with non-standard definition of markets: The set of markets that open depends on the state of demand. I show that when prices are flexible, the equilibrium outcome is efficient if the probability of becoming active depends on the aggregate state but not on the buyer's type. If prices are rigid the equilibrium outcome is in general not efficient except for the case in which there are no costs for delaying trade. The cost of delay is also relevant for price dispersion: Lower cost of delays leads to lower price dispersion.

Suggested Citation

  • Benjamin Eden, 2013. "Price dispersion and efficiency," Vanderbilt University Department of Economics Working Papers 13-00012, Vanderbilt University Department of Economics.
    • Handle: RePEc:van:wpaper:vuecon-13-00012
    as

    Download full text from publisher

    File URL: http://www.accessecon.com/pubs/VUECON/VUECON-13-00012.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Raymond Deneckere & James Peck, 2012. "Dynamic Competition With Random Demand and Costless Search: A Theory of Price Posting," Econometrica, Econometric Society, vol. 80(3), pages 1185-1247, May.
    2. Bental, Benjamin & Eden, Benjamin, 1993. "Inventories in a Competitive Environment," Journal of Political Economy, University of Chicago Press, vol. 101(5), pages 863-886, October.
    3. James D. Dana Jr., 1998. "Advance-Purchase Discounts and Price Discrimination in Competitive Markets," Journal of Political Economy, University of Chicago Press, vol. 106(2), pages 395-422, April.
    4. Raymond Deneckere & Howard P. Marvel & James Peck, 1996. "Demand Uncertainty, Inventories, and Resale Price Maintenance," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 111(3), pages 885-913.
    5. Lazear, Edward P, 1986. "Retail Pricing and Clearance Sales," American Economic Review, American Economic Association, vol. 76(1), pages 14-32, March.
    6. Bryant, John, 1980. "Competitive Equilibrium with Price Setting Firms and Stochastic Demand," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 21(3), pages 619-626, October.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Benjamin Eden, 2014. "Demand uncertainty and efficiency," Vanderbilt University Department of Economics Working Papers 14-00011, Vanderbilt University Department of Economics.
    2. Raymond Deneckere & James Peck, 2012. "Dynamic Competition With Random Demand and Costless Search: A Theory of Price Posting," Econometrica, Econometric Society, vol. 80(3), pages 1185-1247, May.
    3. Diego Escobari, 2012. "Dynamic Pricing, Advance Sales and Aggregate Demand Learning in Airlines," Journal of Industrial Economics, Wiley Blackwell, vol. 60(4), pages 697-724, December.
    4. Eden, Benjamin, 2007. "Inefficient trade patterns: Excessive trade, cross-hauling and dumping," Journal of International Economics, Elsevier, vol. 73(1), pages 175-188, September.
    5. Benjamin Eden, 2018. "Price Dispersion And Demand Uncertainty: Evidence From U.S. Scanner Data," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 59(3), pages 1035-1075, August.
    6. de Meza, David & Reito, Francesco, 2020. "Too much waste, not enough rationing: The failure of stochastic, competitive markets," Journal of Economic Theory, Elsevier, vol. 188(C).
    7. Andrew Sweeting, 2012. "Dynamic Pricing Behavior in Perishable Goods Markets: Evidence from Secondary Markets for Major League Baseball Tickets," Journal of Political Economy, University of Chicago Press, vol. 120(6), pages 1133-1172.
    8. Benjamin Eden & Maya Eden & Jonah Yuen, 2016. "Inside The Price Dispersion Box: Evidence From Us Scanner Data," Vanderbilt University Department of Economics Working Papers 16-00017, Vanderbilt University Department of Economics.
    9. Benjamin Eden & Maya Eden & Jonah Yuen, 2019. "Temporary sales in response to aggregate shocks," Vanderbilt University Department of Economics Working Papers 19-00003, Vanderbilt University Department of Economics.
    10. Escobari, Diego, 2014. "Estimating dynamic demand for airlines," Economics Letters, Elsevier, vol. 124(1), pages 26-29.
    11. Xuanming Su, 2010. "Optimal Pricing with Speculators and Strategic Consumers," Management Science, INFORMS, vol. 56(1), pages 25-40, January.
    12. Benjamin Eden, 2006. "International Seigniorage Payments," Vanderbilt University Department of Economics Working Papers 0622, Vanderbilt University Department of Economics.
    13. Andrew Sweeting, 2008. "Equilibrium Price Dynamics in Perishable Goods Markets: The Case of Secondary Markets for Major League Baseball Tickets," NBER Working Papers 14505, National Bureau of Economic Research, Inc.
    14. Chiou, Yu-Chiun & Liu, Chia-Hsin, 2016. "Advance purchase behaviors of air passengers: A continuous logit model," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 93(C), pages 474-484.
    15. Bilotkach, Volodymyr & Gaggero, Alberto A. & Piga, Claudio A., 2015. "Airline pricing under different market conditions: Evidence from European Low-Cost Carriers," Tourism Management, Elsevier, vol. 47(C), pages 152-163.
    16. Escobari, Diego & Jindapon, Paan, 2014. "Price discrimination through refund contracts in airlines," International Journal of Industrial Organization, Elsevier, vol. 34(C), pages 1-8.
    17. Diego Escobari & Jim Lee, 2014. "Demand uncertainty and capacity utilization in airlines," Empirical Economics, Springer, vol. 47(1), pages 1-19, August.
    18. Fernando Bernstein & Awi Federgruen, 2005. "Decentralized Supply Chains with Competing Retailers Under Demand Uncertainty," Management Science, INFORMS, vol. 51(1), pages 18-29, January.
    19. Wang, Hao, 2004. "Resale price maintenance in an oligopoly with uncertain demand," International Journal of Industrial Organization, Elsevier, vol. 22(3), pages 389-411, March.
    20. Alderighi, Marco & Gaggero, Alberto A. & Piga, Claudio A., 2022. "Hidden prices with fixed inventory: Evidence from the airline industry," Transportation Research Part B: Methodological, Elsevier, vol. 157(C), pages 42-61.

    More about this item

    Keywords

    Price dispersion; demand uncertainty; efficiency; sequential trade; inventories; costs of delaying trade; price rigidity;
    All these keywords.

    JEL classification:

    • D4 - Microeconomics - - Market Structure, Pricing, and Design
    • D5 - Microeconomics - - General Equilibrium and Disequilibrium

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:van:wpaper:vuecon-13-00012. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: John P. Conley (email available below). General contact details of provider: http://www.vanderbilt.edu/econ/wparchive/index.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.