SFB 303 Discussion Paper No. A - 120

Author: Zink, Helmut
Title: Price Stickiness Due to Market Intransparency and Search
Abstract: A market model with price stickiness is developed. Each firm has perfect information about present and future production costs and demands, has rational expectations about the pricing strategies of its competitors, and is essentially flexible in setting prices. Each customer only knows a small fraction of all offers but is at all times informed about the distribution of actual prices and can search for better offers. It is shown that after an increase of production costs all firms delay their price reaction stochastically since the first firms which raise their prices lose customers to waiting firms. These delays result in a unique waiting time Nash equilibrium.
Keywords: price dynamics, price stickiness, price- and quality uncertainty, search, price dispersion
Creation-Date: March 1987
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