Search Costs and Price Dispersion Flashcards
How does broadband influence the economy (through which channels)
Improvement of firm efficiencies
creation of consumer surplus via lower prices and ore competition (reduction of search cost and market expansion)
innovation and provision of new services
contribution to employment
contribution to economic growth
Discuss why there may be price dispersion
at any point, prices for essentially the same product are different across firms.
some consumers are better informeed than others
describe spatial price dispersion
one firm focuses on locked in uninformed consumers, enjoys a large markup but sells few units
another sells to all informed consumers; sacrifices its margin but sells more units
A homogeneous product market with informed and
uninformed consumers and sequential price setting may exhibit
spatial price dispersion → one firm consistently charges a high price
and the other a low price.
How to measure price dispersion
coefficient of vairation (price distribution across time and markets) (sd/mean)
sample range
How to measure search intensity
Proxy - variables that affect benefits or costs of the search
Prediction: items that account for a large share of the budget that are purchased with a higher frequency -> more search -> lower price dispersion
Compare online and offline markets (search is more costly in offline markets)
Does search intensity affect price dispersion
Lower dispersion for items that account for a large share of the searchers budget (car industry)
Are bought more frequently
online vs offine markets - information costs are less in online markets
Discuss telecommunations in developing countries
costly search for information leads to price dispersion
especially the case when infrastructure is poor and markets are disperse
price dispersion reflects market inefficiency
more information can help the poor pay lower prices, bargain
discuss telecomms in developing countries - impact of cellphones
In equilibrium, the flow of supply from markets with low prices to
markets with higher prices reduces dispersion.
RESULTS
more even supply across markets
price gaps close (transport costs)
less waste
prices are less volatile
What could government do
give out mobile phones
kiosks
reduce barriers to entry
