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The Stability of Price Dispersion under Seller and Consumer Learning *
Author(s) -
Hopkins Ed,
Seymour Robert M.
Publication year - 2002
Publication title -
international economic review
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 2.658
H-Index - 86
eISSN - 1468-2354
pISSN - 0020-6598
DOI - 10.1111/1468-2354.t01-1-00052
Subject(s) - price dispersion , economics , monopoly , microeconomics , stability (learning theory) , outcome (game theory) , phenomenon , ask price , convergence (economics) , computer science , macroeconomics , economy , physics , quantum mechanics , machine learning
In many markets, it is possible to find rival sellers charging different prices for the same good. Earlier research has attempted to explain this phenomenon by demonstrating the existence of dispersed price equilibria when consumers must make use of costly search to discover prices. We ask whether such equilibria can be learned when sellers adjust prices adaptively in response to current market conditions. With consumer behavior fixed, convergence to a dispersed price equilibrium is possible in some cases. However, once consumer learning is introduced, the monopoly outcome first found by Diamond ( Journal of Economic Theory 3 (1971), 156–68) is the only stable equilibrium.