Academic Journal

Instability of endogenous price dispersion equilibria: A simulation

Bibliographic Details
Title:	Instability of endogenous price dispersion equilibria: A simulation
Authors:	Lucas Herrenbrueck
Source:	Canadian Journal of Economics/Revue canadienne d'économique. 51:1363-1385
Publication Status:	Preprint
Publisher Information:	Wiley, 2018.
Publication Year:	2018
Subject Terms:	0502 economics and business, 05 social sciences, jel:D83, Simulation, search frictions, Burdett-Judd pricing, Edgeworth cycles, disequilibrium dynamics, jel:D21, jel:D43
Description:	Models of price posting by firms and search by consumers (such as Burdett and Judd 1983), often feature equilibria with endogenous price dispersion. However, such equilibria are strategically fragile. In order to investigate how robust they are in the absence of an external coordination mechanism, I simulate various protocols firms may use to update their prices. Despite firms being myopic, some protocols yield results close to the benchmark model. If firms rush to update before observing competitors’ actions, profits are higher on average but volatile and cyclical. With cost dispersion, prices become more stable as they are more closely tied to costs. All results are robust to moderate menu costs.
Document Type:	Article
Language:	English
ISSN:	1540-5982 0008-4085
DOI:	10.1111/caje.12355
Access URL:	https://ideas.repec.org/a/wly/canjec/v51y2018i4p1363-1385.html https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3275590 https://papers.ssrn.com/sol3/Delivery.cfm/CAJE_CAJE12355.pdf?abstractid=3275590&mirid=1 https://onlinelibrary.wiley.com/doi/10.1111/caje.12355 https://EconPapers.repec.org/RePEc:cje:issued:v:51:y:2018:i:4:p:1363-1385 http://www.sfu.ca/econ-research/RePEc/sfu/sfudps/dp15-07.pdf
Rights:	Wiley Online Library User Agreement
Accession Number:	edsair.doi.dedup.....40558902b2cde0279c71d95c48f5b898
Database:	OpenAIRE

Description
ISSN:	15405982 00084085
DOI:	10.1111/caje.12355