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Price distributions and competition
Considerable evidence demonstrates that significant dispersion exists in the prices charged for seemingly homogeneous goods. This paper adopts a simple, flexible equilibrium model of search to investigate the way the market structure influences price dispersion. Using the noisy search approach, the paper demonstrates the effects of having a single large, price-leading firm with multiple outlets and a competitive fringe of small firms with one retail outlet each.
AUTHORS: Burdett, Kenneth; Smith, Eric
We integrate search theory into an equilibrium framework in a new way and argue that the result is a simple but powerful tool for understanding many issues related to bilateral matching. We assume for much of what we do that utility is less than perfectly transferable. This turns out to generate multiple equilibria that do not arise in a standard model, with transferable utility, unless one adds increasing returns. We also provide simple conditions for uniqueness that apply to models with or without transferable utility or increasing returns. Examples, applications, and extensions are discussed.
AUTHORS: Wright, Randall; Burdett, Kenneth
Pricing with frictions
The authors analyze markets where each of n buyers wants to buy one unit and each of m sellers wants to sell one or more units of an indivisible good. Sellers first set prices, then buyers choose which sellers to visit. There are equilibria where each buyer visits sellers at random and faces a positive probability of rationing when too many other buyers show up at the same location. The authors solve for equilibrium prices and other variables as functions of n and m, compare the outcome to the predictions of other models, and derive some limiting results as the economy gets large. The authors also discuss the impact of changes in capacity and show that the effects of an increase in supply can be very different depending on whether it occurs along the intensive or the extensive margin (a change in the number of units of output per seller or in the number of sellers). Among other things, this last result suggests that the standard matching function in the equilibrium search literature is misspecified. On the basis of this interpretation, the authors propose that the observed outward shift in the Beveridge curve may be explained by a shift in the firm-size distribution.
AUTHORS: Burdett, Kenneth; Shi, Shouyong; Wright, Randall