Price dispersion occurs when different sellers offer different prices for the same good. Empirical studies have identified price dispersion as widespread and persistent. The most frequent explanation for this is that consumers do not have perfect information about prices. Only recently have economists succeeded in modelling price dispersion as an equilibrium phenomenon: that is, where consumers’ decisions to acquire price information are a best response to the distribution of prices, and sellers’ pricing decisions are a best response to consumers’ search behaviour.
This is a preview of subscription content, log in to check access
Baye, M.R., J. Morgan, and P.A. Scholten. 2004. Price dispersion in the small and in the large: Evidence from an internet price comparison site. Journal of Industrial Economics 52: 463–496.CrossRefGoogle Scholar
Baylis, K., and J.M. Perloff. 2002. Price dispersion on the internet: Good firms and bad firms. Review of Industrial Organization 21: 305–324.CrossRefGoogle Scholar
Benabou, R. 1993. Search market equilibrium, bilateral heterogeneity and repeat purchases. Journal of Economic Theory 60: 140–158.CrossRefGoogle Scholar