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Title: Search, Information and Prices

Author(s): Dirk Bergemann, Benjamin A Brooks and Stephen Morris

Publication Date: March 2020

Keyword(s): "Law of One Price", Bayes correlated equilibrium, Bertrand Competition, information structure, price competition, Price Count, Price Quote and search

Programme Area(s): Industrial Organization

Abstract: Consider a market with many identical firms offering a homogeneous good. A consumer obtains price quotes from a subset of firms and buys from the firm offering the lowest price. The "price count" is the number of firms from which the consumer obtains a quote. For any given ex ante distribution of the price count, we obtain a tight upper bound (under first-order stochastic dominance) on the equilibrium distribution of sale prices. The bound holds across all models of firms' common-prior higher-order beliefs about the price count, including the extreme cases of complete information (firms know the price count exactly) and no information (firms only know the ex ante distribution of the price count). A qualitative implication of our results is that even a small ex ante probability that the price count is one can lead to dramatic increases in the expected price. The bound also applies in a wide class of models where the price count distribution is endogenized, including models of simultaneous and sequential consumer search.

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Bibliographic Reference

Bergemann, D, Brooks, B and Morris, S. 2020. 'Search, Information and Prices'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=14521