[go: up one dir, main page]
IDEAS home Printed from https://ideas.repec.org/p/hig/wpaper/51-ec-2014.html
   My bibliography  Save this paper

Non-reservation price equilibria and Consumer search

Author

Listed:
  • Maarten Janssen

    (National Research University Higher School of Economics)

  • Alexei Parakhonyak

    (National Research University Higher School of Economics)

  • Anastasia Parakhonyak

    (Toulouse School of Economics.)

Abstract
When consumers do not know the prices at which different firms sell, they often also do not know production costs. Consumer search models which take asymmetric information about production costs into account continue focusing on reservation price equilibria (RPE) and their properties. We argue that RPE assume specific out-of-equilibrium beliefs that are not consistent with the logic of the D1 refinement criterion. Moreover, RPE suffer from a non-existence problem as they typically do not exist when cost uncertainty is large. We characterize an alternative class of socalled non-RPE. We show these equilibria always exist and do not rely on specific out-of-equilibrium beliefs. Non-reservation equilibria are characterized by active consumer search among consumers. As cost uncertainty facilitates search, more consumers make price comparisons resulting in stronger price competition between firms and higher consumer surplus.

Suggested Citation

  • Maarten Janssen & Alexei Parakhonyak & Anastasia Parakhonyak, 2014. "Non-reservation price equilibria and Consumer search," HSE Working papers WP BRP 51/EC/2014, National Research University Higher School of Economics.
    • Handle: RePEc:hig:wpaper:51/ec/2014
    as

    Download full text from publisher

    File URL: http://www.hse.ru/data/2014/02/10/1327756051/Nonreservationprice%20equilibria%20090214%20hse%20wp.pdf
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Rothschild, Michael, 1974. "Searching for the Lowest Price When the Distribution of Prices Is Unknown," Journal of Political Economy, University of Chicago Press, vol. 82(4), pages 689-711, July/Aug..
    2. Maarten Janssen & Paul Pichler & Simon Weidenholzer, 2011. "Oligopolistic markets with sequential search and production cost uncertainty," RAND Journal of Economics, RAND Corporation, vol. 42(3), pages 444-470, September.
    3. Alexei Parakhonyak & Anton Sobolev, 2015. "Non‐Reservation Price Equilibrium and Search without Priors," Economic Journal, Royal Economic Society, vol. 0(584), pages 887-909, May.
    4. Steven Salop & Joseph Stiglitz, 1977. "Bargains and Ripoffs: A Model of Monopolistically Competitive Price Dispersion," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 44(3), pages 493-510.
    5. Darrell Duffie & Piotr Dworczak & Haoxiang Zhu, 2017. "Benchmarks in Search Markets," Journal of Finance, American Finance Association, vol. 72(5), pages 1983-2044, October.
    6. J. J. McCall, 1970. "Economics of Information and Job Search," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 84(1), pages 113-126.
    7. Asher Wolinsky, 1986. "True Monopolistic Competition as a Result of Imperfect Information," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 101(3), pages 493-511.
    8. Maarten Janssen & Sandro Shelegia, 2015. "Consumer Search and Double Marginalization," American Economic Review, American Economic Association, vol. 105(6), pages 1683-1710, June.
    9. Maarten Janssen & Sandro Shelegia, 2015. "Beliefs and Consumer Search," Vienna Economics Papers 1501, University of Vienna, Department of Economics.
    10. Babur De Los Santos & Ali Hortacsu & Matthijs R. Wildenbeest, 2012. "Testing Models of Consumer Search Using Data on Web Browsing and Purchasing Behavior," American Economic Review, American Economic Association, vol. 102(6), pages 2955-2980, October.
    11. Fershtman, Chaim & Fishman, Arthur, 1992. "Price Cycles and Booms: Dynamic Search Equilibrium," American Economic Review, American Economic Association, vol. 82(5), pages 1221-1233, December.
    12. In-Koo Cho & David M. Kreps, 1987. "Signaling Games and Stable Equilibria," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 102(2), pages 179-221.
    13. Juan Dubra, 2004. "Optimism and Overconfidence in Search," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 7(1), pages 198-218, January.
    14. Babur De los Santos & Ali Hortacsu & Matthijs R. Wildenbeest, 2012. "Search with Learning," Working Papers 2012-03, Indiana University, Kelley School of Business, Department of Business Economics and Public Policy.
    15. Cho, In-Koo & Sobel, Joel, 1990. "Strategic stability and uniqueness in signaling games," Journal of Economic Theory, Elsevier, vol. 50(2), pages 381-413, April.
    16. Dana, James D, Jr, 1994. "Learning in an Equilibrium Search Model," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 35(3), pages 745-771, August.
    17. Daniel S. Putler, 1992. "Incorporating Reference Price Effects into a Theory of Consumer Choice," Marketing Science, INFORMS, vol. 11(3), pages 287-309.
    18. Maarten Janssen & Sandro Shelegia, 2015. "Beliefs and Consumer Search," Vienna Economics Papers vie1501, University of Vienna, Department of Economics.
    19. Maarten Janssen & Alexei Parakhonyak, 2014. "Consumer search markets with costly revisits," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 55(2), pages 481-514, February.
    20. Roland Bénabou & Robert Gertner, 1993. "Search with Learning from Prices: Does Increased Inflationary Uncertainty Lead to Higher Markups?," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 60(1), pages 69-93.
    21. Huanxing Yang & Lixin Ye, 2008. "Search with learning: understanding asymmetric price adjustments," RAND Journal of Economics, RAND Corporation, vol. 39(2), pages 547-564, June.
    22. Janssen, Maarten C.W. & Roy, Santanu, 2010. "Signaling quality through prices in an oligopoly," Games and Economic Behavior, Elsevier, vol. 68(1), pages 192-207, January.
    23. Gurumurthy Kalyanaram & Russell S. Winer, 1995. "Empirical Generalizations from Reference Price Research," Marketing Science, INFORMS, vol. 14(3_supplem), pages 161-169.
    24. Ambarish Chandra & Mariano Tappata, 2011. "Consumer search and dynamic price dispersion: an application to gasoline markets," RAND Journal of Economics, RAND Corporation, vol. 42(4), pages 681-704, December.
    25. Michael Rothschild, 1974. "Searching for the Lowest Price When the Distribution of Prices Is Unknown: A Summary," NBER Chapters, in: Annals of Economic and Social Measurement, Volume 3, number 1, pages 293-294, National Bureau of Economic Research, Inc.
    26. Elisabeth Honka & Pradeep Chintagunta, 2017. "Simultaneous or Sequential? Search Strategies in the U.S. Auto Insurance Industry," Marketing Science, INFORMS, vol. 36(1), pages 21-42, January.
    27. Mariano Tappata, 2009. "Rockets and feathers: Understanding asymmetric pricing," RAND Journal of Economics, RAND Corporation, vol. 40(4), pages 673-687, December.
    28. Arthur Fishman, 1996. "Search with Learning and Price Adjustment Dynamics," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 111(1), pages 253-268.
    29. Maarten C.W. Janssen & Alexei Parakhonyak, 2011. "Consumer Search Markets with Costly Second Visits," Vienna Economics Papers 1102, University of Vienna, Department of Economics.
    30. Stahl, Dale O, II, 1989. "Oligopolistic Pricing with Sequential Consumer Search," American Economic Review, American Economic Association, vol. 79(4), pages 700-712, September.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Cao, Yiran & Chen, Yongmin & Ding, Yucheng & Zhang, Tianle, 2022. "Search and competition in expert markets," MPRA Paper 122509, University Library of Munich, Germany, revised 27 Oct 2024.
    2. Eeva Mauring, 2020. "Informational Cycles in Search Markets," American Economic Journal: Microeconomics, American Economic Association, vol. 12(4), pages 170-192, November.
    3. Gamp, Tobias & Krähmer, Daniel, 2022. "Biased Beliefs in Search Markets," Rationality and Competition Discussion Paper Series 365, CRC TRR 190 Rationality and Competition.
    4. Eeva Mauring, 2020. "Informational Cycles in Search Markets," American Economic Journal: Microeconomics, American Economic Association, vol. 12(4), pages 170-192, November.
    5. Daniel Garcia & Jun Honda & Maarten Janssen, 2017. "The Double Diamond Paradox," American Economic Journal: Microeconomics, American Economic Association, vol. 9(3), pages 63-99, August.
    6. Álvarez, Francisco & Rey, José-Manuel, 2019. "(Quasi) uniqueness and restoring dynamics of price-dispersion market equilibria under search cost," Journal of Mathematical Economics, Elsevier, vol. 81(C), pages 1-13.
    7. Daniel Garcia, 2017. "Dynamic Pricing with Search Frictions," CESifo Working Paper Series 6765, CESifo.
    8. Alexei Parakhonyak & Anton Sobolev, 2015. "Non‐Reservation Price Equilibrium and Search without Priors," Economic Journal, Royal Economic Society, vol. 0(584), pages 887-909, May.
    9. Daniel Garcia & Jun Honda & Maarten Janssen, 2017. "The Double Diamond Paradox," American Economic Journal: Microeconomics, American Economic Association, vol. 9(3), pages 63-99, August.
    10. Cabral, Luís & Gilbukh, Sonia, 2020. "Rational buyers search when prices increase," Journal of Economic Theory, Elsevier, vol. 187(C).
    11. Bleher, Johannes & Dimpfl, Thomas, 2022. "Knitting Multi-Annual High-Frequency Google Trends to Predict Inflation and Consumption," Econometrics and Statistics, Elsevier, vol. 24(C), pages 1-26.
    12. Fishman, Arthur, 2021. "Finitely repeated search and the diamond paradox," Economics Letters, Elsevier, vol. 205(C).
    13. Sebald, Alexander & Vikander, Nick, 2019. "Optimal firm behavior with consumer social image concerns and asymmetric information," Journal of Economic Behavior & Organization, Elsevier, vol. 167(C), pages 311-330.
    14. Arthur Fishman, 2021. "Active search in the Diamond search model," Economics Bulletin, AccessEcon, vol. 41(3), pages 2127-2132.
    15. Schlag, Karl H. & Zapechelnyuk, Andriy, 2021. "Robust sequential search," Theoretical Economics, Econometric Society, vol. 16(4), November.
    16. Atabek Atayev, 2022. "Information Asymmetry and Search Intensity," Papers 2206.04576, arXiv.org.
    17. Daniel Garcia, 2017. "Dynamic Pricing with Search Frictions," CESifo Working Paper Series 6765, CESifo.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Atayev, Atabek, 2022. "Uncertain product availability in search markets," Journal of Economic Theory, Elsevier, vol. 204(C).
    2. Atabek Atayev, 2021. "Uncertain Product Availability in Search Markets," Papers 2109.15211, arXiv.org.
    3. Atayev, Atabek, 2021. "Uncertain product availability in search markets," ZEW Discussion Papers 21-089, ZEW - Leibniz Centre for European Economic Research.
    4. Jun Honda, 2015. "Intermediary Search for Suppliers in Procurement Auctions," Department of Economics Working Papers wuwp203, Vienna University of Economics and Business, Department of Economics.
    5. Maarten Janssen & Paul Pichler & Simon Weidenholzer, 2009. "Sequential Search with Incompletely Informed Consumers: Theory and Evidence from Retail Gasoline Markets," Vienna Economics Papers 0914, University of Vienna, Department of Economics.
    6. Dmitry Lubensky, 2017. "A model of recommended retail prices," RAND Journal of Economics, RAND Corporation, vol. 48(2), pages 358-386, May.
    7. Matthew S. Lewis, 2011. "Asymmetric Price Adjustment and Consumer Search: An Examination of the Retail Gasoline Market," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 20(2), pages 409-449, June.
    8. Alexei Parakhonyak & Anton Sobolev, 2015. "Non‐Reservation Price Equilibrium and Search without Priors," Economic Journal, Royal Economic Society, vol. 0(584), pages 887-909, May.
    9. Maarten Janssen & Paul Pichler & Simon Weidenholzer, 2009. "Sequential Search with Incompletely Informed Consumers: Theory and Evidence from Retail Gasoline Markets," Vienna Economics Papers vie0914, University of Vienna, Department of Economics.
    10. Avi Weiss & Joshua Sherman, 2014. "An Empirical Analysis of Search Costs and Price Dispersion," Working Papers 2014-06, Bar-Ilan University, Department of Economics.
    11. Daniel Garcia & Jun Honda & Maarten Janssen, 2017. "The Double Diamond Paradox," American Economic Journal: Microeconomics, American Economic Association, vol. 9(3), pages 63-99, August.
    12. Fishman, Arthur, 2021. "Finitely repeated search and the diamond paradox," Economics Letters, Elsevier, vol. 205(C).
    13. Cabral, Luís & Gilbukh, Sonia, 2020. "Rational buyers search when prices increase," Journal of Economic Theory, Elsevier, vol. 187(C).
    14. Maarten Janssen & Sandro Shelegia, 2015. "Consumer Search and Double Marginalization," American Economic Review, American Economic Association, vol. 105(6), pages 1683-1710, June.
    15. Daniel Garcia & Jun Honda & Maarten Janssen, 2017. "The Double Diamond Paradox," American Economic Journal: Microeconomics, American Economic Association, vol. 9(3), pages 63-99, August.
    16. Maarten Janssen & Sandro Shelegia, 2015. "Beliefs and Consumer Search," Vienna Economics Papers vie1501, University of Vienna, Department of Economics.
    17. José Tudón, 2021. "Can price dispersion be supported solely by information frictions?," Economic Theory Bulletin, Springer;Society for the Advancement of Economic Theory (SAET), vol. 9(1), pages 75-90, April.
    18. Gamp, Tobias & Krähmer, Daniel, 2022. "Biased Beliefs in Search Markets," Rationality and Competition Discussion Paper Series 365, CRC TRR 190 Rationality and Competition.
    19. Eeva Mauring, 2020. "Informational Cycles in Search Markets," American Economic Journal: Microeconomics, American Economic Association, vol. 12(4), pages 170-192, November.
    20. Alexei Parakhonyak, 2014. "Oligopolistic Competition and Search Without Priors," Economic Journal, Royal Economic Society, vol. 0(576), pages 594-606, May.

    More about this item

    Keywords

    Sequential Search; Non-Reservation Price Equilibria; Asymmetric Information;
    All these keywords.

    JEL classification:

    • D40 - Microeconomics - - Market Structure, Pricing, and Design - - - General
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:hig:wpaper:51/ec/2014. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Shamil Abdulaev or Shamil Abdulaev (email available below). General contact details of provider: https://edirc.repec.org/data/hsecoru.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.