01 de agosto, José A. Carrasco, UAI

Paper: Search and Price Dispersion in Oligopolies

Expositor: José A. Carrasco, UAI.
Fecha: Jueves 01 de Agosto de 2019
Hora: 13:00 horas a 14:00 horas.
Lugar: Avda. Santa Clara N° 797,
Campus Ciudad Empresarial,
Sala C-302 – Edificio Cubo

Abstract

We explore equilibrium price dispersion in an oligopolistic product market with search frictions. The distinct feature of our theory is that consumers aggregate demand functions are obtained endogenously. We show that price dispersion generically arises when firms have heterogeneous price impact on consumers search strategy, inheriting demand curves with different price elasticities. Crucially, this only emerges when there is heterogeneity on both sides of the market. As frictions vanish, so does price dispersion, resolving Diamond’s paradox. However, dispersion might not fall monotonically. In cases of only one sided heterogeneity, demand curves are shown to be equally elastic, which translate into a unique equilibrium without dispersion. In particular, when consumers are homogeneous, demand curves are infinitely inelastic and so all firms charge the monopolistic price. Our theory provides a common explanation for how heterogeneity translates into price dispersion.