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Competitive Equilibria in Markets for Heterogeneous Goods Under Imperfect Information: A Theoretical Analysis with Policy Implications

Schwartz, Alan and Wilde, Louis L. (1981) Competitive Equilibria in Markets for Heterogeneous Goods Under Imperfect Information: A Theoretical Analysis with Policy Implications. Social Science Working Paper, 381. California Institute of Technology , Pasadena, CA. (Unpublished)

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This paper characterizes necessary and sufficient conditions for heterogeneous search goods to trade at their competitive prices, and derives policy implications from these conditions. The model differs from earlier search equilibrium models in that it assumes the existence of product heterogeniety. Our principle conclusions are that markets for heterogeneous search goods tend rather easily to segment into homogeneous subsets; when they do not, heterogeniety can work against the existence of competitive equilibria because it dilutes the effectiveness of search. Nevertheless, the likelihood of competitive equilibria obtaining in heterogeneous search goods markets can often be increased by reducing the costs to consumers of directly comparing purchase alternatives.

Item Type:Report or Paper (Working Paper)
Additional Information:This research was supported by NSF Grant No. DAR-8016066. Edward J. Green, John Ferejohn, and James Strnad made helpful comments on prior drafts. The paper also benefited from a conversation with Michael Rothchild and presentation at the UCLA Law and Economics workshop. Published as Schwartz, Alan, and Louis L. Wilde. "Competitive equilibria in markets for heterogeneous goods under imperfect information: a theoretical analysis with policy implications." The Bell Journal of Economics (1982): 181-193.
Group:Social Science Working Papers
Funding AgencyGrant Number
Subject Keywords:Consumer prices, Consumer goods, Goods, Consumer equilibrium, Market prices, Shopping, Marginal costs, Consumer behavior, Retail stores, Consumer preferences
Series Name:Social Science Working Paper
Issue or Number:381
Record Number:CaltechAUTHORS:20171005-152244248
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Usage Policy:No commercial reproduction, distribution, display or performance rights in this work are provided.
ID Code:82133
Deposited By: Jacquelyn Bussone
Deposited On:06 Oct 2017 18:16
Last Modified:03 Oct 2019 18:51

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