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Non-reservation price equilibria and consumer search

Janssen, Maarten C.W.; Parakhonyak, Alexei; Parakhonyak, Anastasia

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Authors

Maarten C.W. Janssen

Alexei Parakhonyak

Anastasia Parakhonyak



Contributors

Abstract

Reservation price equilibria (RPE) do not accurately assess market power in consumer search markets. In most search markets, consumers do not know important elements of the environment in which they search (such as, for example, firms' cost). We argue that when consumers learn when searching, RPE suffer from theoretical issues, such as non-existence and critical dependence on specific out-of-equilibrium beliefs. We characterize equilibria where consumers rationally choose search strategies that are not characterized by a reservation price. Non-RPE always exist and do not depend on specific out-of-equilibrium beliefs. Non-RPE have active consumer search and are consistent with recent empirical findings.

Citation

Janssen, M. C., Parakhonyak, A., & Parakhonyak, A. (2017). Non-reservation price equilibria and consumer search. Journal of Economic Theory, 172, 120-162. https://doi.org/10.1016/j.jet.2017.08.003

Journal Article Type Article
Acceptance Date Aug 7, 2017
Online Publication Date Aug 18, 2017
Publication Date Nov 1, 2017
Deposit Date Sep 25, 2018
Publicly Available Date Sep 27, 2018
Journal Journal of Economic Theory
Print ISSN 0022-0531
Publisher Elsevier
Peer Reviewed Peer Reviewed
Volume 172
Pages 120-162
DOI https://doi.org/10.1016/j.jet.2017.08.003
Public URL https://durham-repository.worktribe.com/output/1313496

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