Elsevier

Games and Economic Behavior

Volume 78, March 2013, Pages 21-30
Games and Economic Behavior

The informational divide

https://doi.org/10.1016/j.geb.2012.10.016Get rights and content

Abstract

We propose a model of price competition where consumers exogenously differ in the number of prices they compare. Our model can be interpreted either as a non-sequential search model or as a network model of price competition. We show that (i) if consumers who previously just sampled one firm start to compare more prices all types of consumers will expect to pay a lower price and (ii) if consumers who already sampled more than one price sample (even) more prices then there exists a threshold – the informational divide – such that all consumers comparing fewer prices than this threshold will expect to pay a higher price whereas all consumers comparing more prices will expect to pay a lower price than before. Thus increased search can create a negative externality and it is not necessarily beneficial for all consumers.

Highlights

► A model of price competition where consumers exogenously differ in the number of prices they compare. ► More search for uninformed consumers has a positive price externality to all consumers. ► More search for partially informed consumers has a negative price externality to low informed consumers: this is the informational divide.

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Cited by (10)

  • Improving comparison shopping agents' competence through selective price disclosure

    2015, Electronic Commerce Research and Applications
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    Other works consider the buyer to be the CSA entity itself (Varian 1980, Stahl 1989, Janssen et al. 2005), i.e., the CSA uses the most cost-effective search strategy to minimize the buyer’s overall expense. Naturally, in such cases, the existence of CSAs improves the buyers’ performance, resulting in a lower benefit to sellers (Gorman et al. 2009, Nermuth et al. 2013). The few works that do assume that the CSAs are self-interested autonomous entities, as does our work, focus on CSAs that charge buyers for their services (Kephart et al. 2000, Kephart and Greenwald 2002) (rather than sellers as in today’s markets (Wan and Peng 2010).

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    2018, B.E. Journal of Theoretical Economics
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We are grateful to two referees and to the advisory editor for their useful suggestions. The authors wish to thank Larry Blume, Giacomo Calzolari, Andrea Galeotti, Maarten Janssen, Saul Lach, Marco van der Leij, José Luis Moraga-González, Marco Ottaviani, Mario Padula, and Fernando Vega-Redondo for useful comments on earlier drafts of this paper. Previous versions of this paper were circulated under the titles “Price Dispersion, Search Externalities, and the Digital Divide” and “A Network Model of Price Dispersion.”

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