Oligopolistic Competition and Search Without Priors

21 Pages Posted: 18 May 2013

See all articles by Alexei Parakhonyak

Alexei Parakhonyak

University of Oxford - Department of Economics

Date Written: May 16, 2013

Abstract

I study a model of oligopolistic competition in which consumers search for prices, but have no idea about the underlying price distribution. Consumers’ behaviour satisfies four consistency requirements such that beliefs about the underlying distribution maximize Shannon entropy. I derive the optimal stopping rule and equilibrium price distribution of the model. Unlike in Stahl (1989), the expected price is decreasing in the number of firms. Moreover, consumers can benefit from being uninformed, if the number of firms is sufficiently large.

Keywords: consumer search, search without priors, bounded rationality, entropy

JEL Classification: D83, D43, L11

Suggested Citation

Parakhonyak, Alexei, Oligopolistic Competition and Search Without Priors (May 16, 2013). Higher School of Economics Research Paper No. WP BRP 30/EC/2013, Available at SSRN: https://ssrn.com/abstract=2265861 or http://dx.doi.org/10.2139/ssrn.2265861

Alexei Parakhonyak (Contact Author)

University of Oxford - Department of Economics ( email )

10 Manor Rd
Oxford, OX1 3UQ
United Kingdom

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