Non-Reservation Price Equilibria and Search Without Priors

Authors/others:Sobolev, Anton; Parakhonyak, Alexei (National Research University – Higher School of Economics)
Abstract:In this paper we analyse a model of oligopolistic competition in which consumers search without priors. Consumers do not have prior beliefs about the distribution of prices charged by firms and thus try to use a robust search procedure: they minimize the loss relative to the searcher, who knows the price distribution, in the worst case scenario. We show that the optimal stopping rule is stochastic and that for any distribution of search costs there is a unique market equilibrium which is characterized by price dispersion. Although listed prices approach the monopoly price as the number offirms increases, the effective price paid by consumers does not depend on the number of firms. We show that prices in our model are lower than those in a model where consumers know the distribution of prices.
Date of publication:5.2015
Journal title:The Economic Journal
Peer reviewed:true
Digital Object Identifier (DOI):
Publication Type:Article