Oligopolistic Competition and Search Without Priors

Parakhonyak, Alexei

doi:10.1111/ecoj.12142

Cited by 5 publications

(2 citation statements)

References 10 publications

(52 reference statements)

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“…In his model a fraction of consumers are shoppers and a fraction of them disregard the equilibrium price distribution and derive a stopping rule that satisfies certain consistency requirements. Unlike Parakhonyak (2014), my consumers follow a simple rule of thumb.…”

Section: The Modelmentioning

confidence: 99%

Price competition with satisficing consumers

Papi

2018

International Journal of Industrial Organization

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Section: The Modelmentioning

confidence: 99%

Price competition with satisficing consumers

Papi

2018

International Journal of Industrial Organization

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“…The most widely cited clearinghouse model was developed by Varian (1980), but there have been several followers extending that model in different directions (Narasimhan 1988;Stahl 1989). Recent extensions include models with heterogeneous search costs (Chen and Zhang 2011), unknown production costs (Jansen et al, 2011), non-shoppers with some but limited information (Parakhonyak 2014), costly recall for consumers (Jansen and Parakhonyak 2014), and geographical consumer segregation (Obradovits 2017). A common feature of these models is that the use of mixed strategies creates price dispersion in equilibrium.…”

Section: Introductionmentioning

confidence: 99%

Is intertemporal price discrimination the cause of price dispersion in markets with low search costs?

Lindgren

Daunfeldt

Rudholm³

et al. 2020

Applied Economics Letters

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Theories of intertemporal price discrimination imply that prices must be chosen using mixed strategies, with retailers changing their prices randomly over time. Otherwise, consumers will learn which retailer has the lowest price, and eventually, all customers will patronize the lowest price retailer, or all retailers will charge the same price. We test whether price dispersion is explained by intertemporal price discrimination strategies using a dataset of identical products sold through the PriceSpy price comparison website. Our results show that there are clusters of retailers with similar pricing within each cluster, but with different price levels between clusters even after controlling for retailer heterogeneity. Retailers also remain in the same price cluster over time, suggesting that consumers have ample opportunities to learn which retailers belong to which price cluster. Intertemporal price discrimination is thus unlikely to have caused the observed price dispersion.

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Non‐Reservation Price Equilibrium and Search without Priors

Parakhonyak

Sobolev

2015

The Economic Journal

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We analyse a model of oligopolistic competition in which consumers search without priors. Consumers do not have prior beliefs about the distribution of prices charged by firms and thus try to use a robust search procedure. We show that the optimal stopping rule is stochastic and that for any distribution of search costs there is a unique market equilibrium which is characterised by price dispersion. Although listed prices approach the monopoly price as the number of firms increases, the effective price paid by consumers does not depend on the number of firms.Uncertainty lies at the heart of any optimal search problem. Most of the search literature reduces uncertainty to risk, by assuming that options are sampled from a known distribution. In the consumer search literature this risk comes from mixed pricing strategies employed by firms (Stahl, 1989;Janssen et al., 2005), or from a random component in utility (Wolinsky, 1986;Anderson and Renault, 1999;Armstrong and Zhou, 2010). In the recent literature, a more sophisticated approach is often employed: consumers are unaware of some parameters of the model and 'estimate' them in a Bayesian way using the observed prices (Dana, 1994;Janssen et al., 2011). All these models require consumers to have certain 'priors' -distributional assumptions over prices, utilities or other parameters of the model.As the consumer search literature deals with situations where consumers do not know prices, it is natural to assume that in such situations they also do not know how many firms operate in the market nor what those firms' costs and market shares might be. Therefore, in this article, we propose a robust search procedure, where the solution of the optimal stopping problem does not rely either on priors about parameters of the model, or on the market model structure itself. As consumers are agnostic about the distribution of options from which they sample, they cannot base their decisions on traditional expected utility. In our study, consumers use the optimal stopping rule which minimises the loss in comparison with an (imaginary) informed searcher (who knows the distribution of the prices) in the worst case scenario. By doing so consumers are guaranteed that the expected difference between their utility and the utility obtained under ex ante optimal behaviour is below a certain bound.In our study, we look at a market with a homogenous good in which consumers search for the best price. However, our results can be applied to a wide variety of

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Oligopolistic Competition and Search Without Priors

Cited by 5 publications

References 10 publications

Price competition with satisficing consumers

Price competition with satisficing consumers

Is intertemporal price discrimination the cause of price dispersion in markets with low search costs?

Non‐Reservation Price Equilibrium and Search without Priors

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