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Imperfect Information, Monopolistic Competition, and Public Policy

Schwartz, Alan and Wilde, Louis L. (1982) Imperfect Information, Monopolistic Competition, and Public Policy. American Economic Review, 72 (2). pp. 18-23. ISSN 0002-8282.

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[Introduction] Ever since the pioneering work of George Stigler (1961) and the provocative survey by Michael Rothschild (1973), economists have recognized that general equilibrium models yield competitive equilibria only by making strong assumptions about the information available to market participants. In response to this difficulty, theorists in recent years have developed a family of "search equilibrium models" that presuppose homogeneity and the absence of price discrimination, and which also assume that information acquisition costs are positive for at least a subset of buyers. On the basis of these and other assumptions, the models attempt to show how price dispersion equilibria can arise solely as a result of the strategies that firms and consumers pursue. One author summarized the results: "if information is costly, each small firm obtains market power" so that "The relevant market structure with imperfect information is not per/ ect competition but rather monopolistic competition" (Steven Salop, 1976, p. 240).

Item Type:Article
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URLURL TypeDescription ItemSocial Science Working Paper 403
Additional Information:This paper has benefited greatly from the comments and suggestions of Edward Green, Mary O' Keeffe, Jennifer Reinganum and James Strnad. Our work was supported by NSF Grant No. DAR-8016066. Originally submitted as: Schwartz, Alan and Wilde, Louis L. (1981) Imperfect Information and Monopolistic Competition. Social Science Working Paper, 403. California Institute of Technology , Pasadena, CA.
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Subject Keywords:Consumer prices, Consumer equilibrium, Marginal cost pricing, Consumer information, Economic models, Acquisition costs, Modeling, Monopolistic competition, Sumer, Market prices
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ID Code:82096
Deposited By: Katherine Johnson
Deposited On:04 Oct 2017 23:38
Last Modified:03 Oct 2019 18:50

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