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- Title
Search costs decrease prices in a model of spatial competition.
- Authors
Braid, Ralph M.
- Abstract
This paper examines the Nash equilibrium prices of stores in a spatial search model. By assumption, a large store is certain to have the particular product a consumer wants, whereas a small store has it with probability w. Large and small stores alternate with each other on a circular roadway. Consumers must search by visiting stores. In the Nash price equilibrium, large stores charge higher prices than small stores. Perhaps surprisingly, all Nash equilibrium prices are lower than in the corresponding perfect-information-no-search model (for a given value w). This last result is also demonstrated in a model with only small stores.
- Subjects
ECONOMIC competition; RETAIL stores; CONSUMER behavior; NASH equilibrium; TRAVEL costs; CONSUMER goods sales &; prices
- Publication
Papers in Regional Science, 2014, Vol 93, Issue 1, p125
- ISSN
1056-8190
- Publication type
Article
- DOI
10.1111/j.1435-5957.2012.00474.x