Premium
Search costs decrease prices in a model of spatial competition
Author(s) -
Braid Ralph M.
Publication year - 2014
Publication title -
papers in regional science
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.937
H-Index - 64
eISSN - 1435-5957
pISSN - 1056-8190
DOI - 10.1111/j.1435-5957.2012.00474.x
Subject(s) - competition (biology) , value (mathematics) , product (mathematics) , economics , microeconomics , econometrics , mathematics , statistics , ecology , geometry , biology
This paper examines the N ash equilibrium prices of stores in a spatial search model. By assumption, a large store is certain to have the particular product a consumer wants, whereas a small store has it with probability w . Large and small stores alternate with each other on a circular roadway. Consumers must search by visiting stores. In the N ash price equilibrium, large stores charge higher prices than small stores. Perhaps surprisingly, all N ash equilibrium prices are lower than in the corresponding perfect‐information‐no‐search model (for a given value w ). This last result is also demonstrated in a model with only small stores.