Price Dispersion: an Evolutionary Approach

Ed Hopkins, Robert M. Seymour

Research output: Working paperDiscussion paper

Abstract

In many markets it is possible to find rival sellers charging different prices for the same good. Earlier research has explained this phenomenon by demon-strating the existence of dispersed price equilibria when consumers must make use of costly search to discover prices. Taking as a starting point the model of Burdett and Judd (Econometric, 1983), this paper, extending evolutionary techniques to a game with nonlinear payoffs and a continuum of strategies, reexamines the question of price dispersion from an evolutionary, disequilibrium perspective. That is, firms and consumers adjust behaviour adaptively in response to current market conditions. We find that dispersed price equilibria are unstable when consumers use a fixed sample size search rule but may be stable when a reservation price rule is used.
Original languageEnglish
PublisherESRC Centre on Economics Learning and Social Evolution
Publication statusPublished - Feb 1996

Publication series

NameELSE working papers
No.1

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