DP16268 Partially Directed Search for Prices

Author(s): Eeva Mauring
Publication Date: June 2021
Date Revised: July 2021
Keyword(s): partial information, partially directed search, Price distribution, Sales, unprofitable trade promotions
JEL(s): D43, D83, L13
Programme Areas: Industrial Organization
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=16268

I analyse a model of partially directed search where searchers decide which firm to visit based on correct, but incomplete, information about firms' prices. Firms' pure strategies are allowed to be price distributions and in the unique symmetric pure-strategy equilibrium the price distributions are nondegenerate. The model's results rationalise empirical observations on promotions and changes in consumer prices: the lowest offered prices are unprofitable, the pdf of the price distribution is increasing, and the lowest prices are decreasing in the number of firms and the search cost.