The Diamond Paradox: A Dynamic Resolution

Arbeitspapier

We consider the role of repeat business in resolving the paradox of Diamond (1971). In each period, consumers engage in sequential price search at a positive search cost. Consumers enforce pricing discipline via a simple loyalty-boycott search rule that directs future-period seraches away from firms that raise prices in the current period. In consumers' best equlibria, the equilibrium price decreases continuously with the level of search costs, and the competitive outcome obtains as search costs approach zero. We show further that Rotemberg and Saloner's (1986) finding of countercyclical markups does not arise in the presence of positive search costs.

Angaben zum Objekt

• Sprache: Englisch

Verweise und Beziehungen

• Erschienen in: Series: Discussion Paper ; No. 1013

Klassifikation und Themen

• Klassifikation: Wirtschaft

Beteiligte, Orts- und Zeitangaben

• Ereignis: Geistige Schöpfung
• (wer): Bagwell, Kyle ; Ramey, Garey
• Ereignis: Veröffentlichung
• (wer): Northwestern University, Kellogg School of Management, Center for Mathematical Studies in Economics and Management Science
• (wo): Evanston, IL
• (wann): 1992

Weitere Informationen

• Handle: http://hdl.handle.net/10419/221370
• Letzte Aktualisierung: 10.03.2025, 11:44 MEZ