A simple model of price dispersion
Abstract: This article considers a simple stock-flow matching model with fully informed market participants. Unlike in the standard matching literature, prices are assumed to be set ex-ante. When sellers pre-commit themselves to sell their products at an advertised price, the unique equilibrium is characterized by price dispersion due to the idiosyncratic match payoffs (in a marketplace with full information). This provides new insights into the price dispersion literature, where price dispersion is commonly assumed to be generated by a costly search of uninformed buyers.
File(s): File format is application/pdf http://www.dallasfed.org/assets/documents/institute/wpapers/2012/0112.pdf
Provider: Federal Reserve Bank of Dallas
Part of Series: Globalization Institute Working Papers
Publication Date: 2012
Pages: 8 pages
Note: Published as: Chudik, Alexander (2012), "A Simple Model of Price Dispersion," Economics Letters 117 (1): 344-347.