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A MODEL OF SEARCH AND SHOPPING BY HOMOGENEOUS CUSTOMERS WITHOUT PRICE PRECOMMITMENT BY FIRMS
Author(s) -
Daughety Andrew F.
Publication year - 1992
Publication title -
journal of economics and management strategy
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.672
H-Index - 68
eISSN - 1530-9134
pISSN - 1058-6407
DOI - 10.1111/j.1430-9134.1992.00455.x
Subject(s) - precommitment , marginal cost , homogeneous , microeconomics , search cost , economics , distribution (mathematics) , bargaining power , price discrimination , business , industrial organization , physics , mathematics , thermodynamics , mathematical analysis
Price setting by firms and search by customers is analyzed, relaxing two basic attributes of most search models: price precommitment and agent heterogeneity. Customers are characterized by individual demand functions for a homogeneous good and can choose to employ a threat to search. Firms noncooperatively make pricing decisions by using the individual demand curves under conditions of constant marginal cost. Firms adopt pricing rules that optimally respond to customer search histories. Bargaining power is endogenously assigned. Firms know their common marginal cost; customers, the cost distribution. The unique separating equilibrium is characterized by a lumpy distribution of prices and by heterogeneous shopping behavior by customers giving rise to “shoppers” and “nonshoppers”