Premium
Price Dispersion and Consumer Reservation Prices
Author(s) -
Anderson Simon P.,
De Palma André
Publication year - 2005
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.1430-9134.2005.00034.x
Subject(s) - price dispersion , reservation price , marginal cost , economics , limit price , mid price , microeconomics , reservation , factor price , search cost , marginal revenue , monopoly , price discrimination , dispersion (optics) , transaction cost , price level , econometrics , monetary economics , political science , law , physics , optics
We describe firm pricing when consumers follow simple reservation price rules. In stark contrast to other models in the literature, this approach yields price dispersion in pure strategies even when firms have the same marginal costs. At the equilibrium, lower price firms earn higher profits. The range of price dispersion increases with the number of firms: the highest price is the monopoly price, while the lowest price tends to marginal cost. The average transaction price remains substantially above marginal cost even with many firms. The equilibrium pricing pattern is the same when prices are chosen sequentially.