A theory of stable price dispersion

Working paper

We propose a two-stage replacement for established “clearinghouse" or “captive and shopper" pricing models: second-stage retail prices are constrained by first-stage list prices. In contrast to the mixed-strategy equilibria of single-stage games, a unique profile of distinct prices is supported by the play of pure strategies along the equilibrium path, and so we predict stable price dispersion. We find novel results in applications to models of sales, product prominence, advertising, and consumer search.

Authors: Myatt, DP; Ronayne, D

• Publication status: Published
• Publisher: University of Oxford Publisher's website
• Series: Department of Economics Discussion Paper Series
• Article number: 873
• Publication date: 2019-10-01
• Paper number: 873
• Language: English
• Keywords: clearinghouse models; buyer search; advertising; price dispersion; prominence