Editorial BoardXML

Seoul Journal of Economics - Vol. 19 , No. 3
[Paper List] [Go to Volume List]

[ Article ]
Seoul Journal of Economics - Vol. 19, No. 3, pp. 329-342
Abbreviation: SJE
ISSN: 1225-0279 (Print)
Print publication date 31 Aug 2006
Received 20 Apr 2006 Revised 01 Sep 2006

Multiple Equilibria in a Simple Model of Search with Entry
Sugato Dasgupta
Associate Professor, Centre for Economic Studies and Planning, Jawaharlal Nehru University, New Delhi 110067, India, Tel: +91-1126704499, Fax: +91-11-26717586 (sugatodasgupta@rediffmail.com)

JEL Classfication: L11, L13

Abstract

Diamond (1971) analyzed a goods market wherein identical buyers with unitary demand searched sequentially over identical monopolistically competitive firms. The equilibrium market price was shown to be the monopoly price. Suppose, now, that to participate in a “Diamond-market,” prospective buyers are charged a small but positive entry fee. Since the market price fully extracts consumer surplus from entering buyers, no one finds it worthwhile to pay this entry fee. To study the non-trivial implications of consumer entry, I modify the Diamond-model slightly. The modified model displays two interesting features: buyers with strictly positive entry fees enter the goods market, and the goods market generates multiple equilibrium prices.

Keywords: Search, Market entry, Multiple equilibria
Acknowledgments

This paper, which is based on a chapter of my dissertation at the Massachusetts Institute of Technology, has benefited from the guidance of Daron Acemoglu and Peter Diamond. An anonymous referee suggested changes that improved the paper’s expositional quality. Of course, the usual disclaimer applies.

References
1. Albrecht, J., and Axell, B. “An Equilibrium Model of Search Unemployment.” Journal of Political Economy 92 (No. 5 1984): 824-41.
2. Axell, B. “Search Market Equilibrium.” Scandinavian Journal of Economics 79 (No. 1 1977): 20-40.
3. Burdett, K., and Judd, K. “Equilibrium Price Dispersion.” Econometrica 51 (No. 4 1983): 955-69.
4. Butters, G. “Equilibrium Distributions of Sales and Advertising Prices.” Review of Economic Studies 44 (No. 3 1977): 465-91.
5. Diamond, P. “A Model of Price Adjustment.” Journal of Economic Theory 3 (No. 2 1971): 156-68.
6. Diamond, P. “Consumer Differences and Prices in a Search Model.” Quarterly Journal of Economics 102 (No. 2 1987): 429-36.
7. Reinganum, J. “A Simple Model of Equilibrium Price Dispersion.” Journal of Political Economy 87 (No. 4 1979): 851-8.
8. Rob, R. “Equilibrium Price Distributions.” Review of Economic Studies 52 (No. 3 1985): 487-504.
9. Rogerson, R., Shimer, R., and Wright, R. “Search-theoretic Models of the Labor Market: A Survey.” Journal of Economic Literature 43 (No. 4 2005): 959-88.
10. Rubinstein, A., and Wolinsky, A. “Equilibrium in a Market with Sequential Bargaining.” Econometrica 53 (No. 5 1985): 1133-50.
11. Salop, S., and Stiglitz, J. “Bargains and Ripoffs: A Model of Monopolistically Competitive Price Dispersion.” Review of Economic Studies 44 (No. 3 1977): 493-510.
12. Salop, S., and Stiglitz, J. “The Theory of Sales: A Simple Model of Equilibrium Price Dispersion with Identical Agents.” American Economic Review 72 (No. 5 1982): 1121-30.
13. Shilony, Y. “Mixed Pricing in Oligopoly.” Journal of Economic Theory 14 (No. 2 1977): 373-88.
14. Stiglitz, J. “Competition and the Number of Firms in an Industry: Are Duopolies More Competitive than Atomistic Markets?” Journal of Political Economy 95 (No. 5 1987): 1041-61.
15. Varian, H. “A Model of Sales.” American Economic Review 70 (No. 4 1980): 651-9.
 

Editorial Office, Seoul Journal of Economics, Institute of Economic Research, Seoul National University 599 Gwanangno, Gwanak-gu, Seoul 151-746, Korea
Tel: +82-2-880-5434 | Fax: +82-2-888-4454 | E-mail: sje@plaza.snu.ac.kr
Copyright (c) 2020 SJE. All rights reserved.