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Networks, frictions, and price dispersion

Donna, Javier D. and Schenone, Pablo and Veramendi, Gregory F. (2020) Networks, frictions, and price dispersion. Games and Economic Behavior, 124 . pp. 406-431. ISSN 0899-8256.

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This article uses networks to study price dispersion in seller-buyer markets where buyers with unit demand interact with multiple, but not all, sellers; and buyers and sellers compete on prices after they meet. The central finding of this article is that price dispersion is determined by the structure of the network. First, for any given network we characterize the pairwise stable matchings and the prices that support them. Second, we characterize the set of all graphs where price dispersion is precluded. Third, we use a theorem from Frieze (1985) to show that the graphs where price dispersion is precluded arise asymptotically with probability one in random Poisson networks, even as the probability of each individual link goes to zero. Finally, we calibrate our model to the documented price dispersion at the online trading platform eBay and show how counterfactual network structures at eBay would substantially decrease price dispersion.

Item Type:Article
Related URLs:
URLURL TypeDescription Paper
Donna, Javier D.0000-0002-2383-5444
Veramendi, Gregory F.0000-0002-5575-6994
Additional Information:© 2020 Published by Elsevier. Received 23 February 2019, Available online 24 September 2020. Discussions with Jim Albrecht, Matt Backus, David Blau, Hector Chade, Eleanor Dillon, Laura Doval, Domenico Ferraro, John Hatfield, John Kagel, Shachar Kariv, Rasmus Lentz, Dan Levin, Jim Peck, Tiago Pires, Rob Porter, Andrew Rhodes, Alan Sorensen, Steve Tadelis, Rune Vejlin, Susan Vroman, Bruce Weinberg, Huanxing Yang as well as seminar participants at Arizona State University, Cycles, Adjustment, and Policy conference (Aarhus University), the Southwest SaM conference (University of California Riverside), 2014 and 2016 annual SaM Conferences, Mainz Workshop in Labour Economics, the 13th International Industrial Organization conference (Boston), the editor, Tim Roughgarden, and anonymous referees have greatly benefited this work. All errors are our own. This research did not receive any specific grant from funding agencies in the public, commercial, or not-for-profit sectors. Declaration of Competing Interest: There is no conflict of interest.
Subject Keywords:Price dispersion; Frictions; Networks
Classification Code:JEL Codes: L11; J31; J64
Record Number:CaltechAUTHORS:20200925-104734322
Persistent URL:
Official Citation:Javier D. Donna, Pablo Schenone, Gregory F. Veramendi, Networks, frictions, and price dispersion, Games and Economic Behavior, Volume 124, 2020, Pages 406-431, ISSN 0899-8256, (
Usage Policy:No commercial reproduction, distribution, display or performance rights in this work are provided.
ID Code:105550
Deposited By: George Porter
Deposited On:25 Sep 2020 20:10
Last Modified:07 Oct 2020 17:23

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