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Costly Search, Capacity Constraints, and Bertrand Equilibrium Price Dispersion
Michael A. Arnold
International Economic Review
Vol. 41, No. 1 (Feb., 2000), pp. 117-131
Published by: Wiley for the Economics Department of the University of Pennsylvania and Institute of Social and Economic Research, Osaka University
Stable URL: http://www.jstor.org/stable/2648825
Page Count: 15
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This article analyzes the impact of transaction (search) costs and capacity constraints in an almost competitive market with homogeneous firms that compete on price. We characterize conditions under which Nash equilibria with price dispersion exist; in equilibrium, firms play pure strategies in prices and consumers adopt a symmetric mixed search strategy. Price dispersion is possible even though consumers all have the same search cost and valuation for the item and prices charged by all firms are common knowledge.
International Economic Review © 2000 Economics Department of the University of Pennsylvania