Arbeitspapier

Price dispersion in dynamic competition

In product markets, there exists substantial dispersion in prices for transactions of physically identical goods, and incumbent sellers sell at higher prices than entrants. This study develops a theory of dynamic pricing that explains these facts as results from the same fundamental friction: Buyers are imperfectly aware of which sellers are operating, and the degree of awareness about a seller is ndogenous. The equilibrium is unique and efficient, and features randomized pricing strategies where incumbents post higher prices than entrants. If buyers' memory depreciation is low, then the equilibrium of the industry tends to approximate perfectly competitive conditions over time.

Language
Englisch

Bibliographic citation
Series: Texto para discussão ; No. 675

Classification
Wirtschaft
Bargaining Theory; Matching Theory
Consumer Economics: Theory
Market Structure, Pricing, and Design: General
Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
Subject
Buyer Awareness
Price Dispersion
Customer Capital
Industry Life Cycle
Information Frictions

Event
Geistige Schöpfung
(who)
Guthmann, Rafael R.
Event
Veröffentlichung
(who)
Pontifícia Universidade Católica do Rio de Janeiro (PUC-Rio), Departamento de Economia
(where)
Rio de Janeiro
(when)
2020

Handle
Last update
10.03.2025, 11:44 AM CET

Data provider

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Object type

  • Arbeitspapier

Associated

  • Guthmann, Rafael R.
  • Pontifícia Universidade Católica do Rio de Janeiro (PUC-Rio), Departamento de Economia

Time of origin

  • 2020

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