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Atlanta Fed Working Papers


Price Distributions and Competition

Ken Burdett and Eric Smith
Working Paper 2009-27
October 2009

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Considerable evidence demonstrates that significant dispersion exists in the prices charged for seemingly homogeneous goods. This paper adopts a simple, flexible equilibrium model of search to investigate the way the market structure influences price dispersion. Using the noisy search approach, the paper demonstrates the effects of having a single large, price-leading firm with multiple outlets and a competitive fringe of small firms with one retail outlet each.

JEL classification: D40, L7

Key words: price dispersion, consumer search, market structure


The views expressed here are the author's and not necessarily those of the Federal Reserve Bank of Atlanta or the Federal Reserve System. Any remaining errors are the author's responsibility.

Please address questions regarding content to Ken Burdett, Department of Economics, University of Pennsylvania, 3718 Locust Walk, Philadelphia, PA 19104, or Eric Smith, Research Department, Federal Reserve Bank of Atlanta and Department of Economics, University of Essex, Wivenhoe Park, Colchester, Essex CO4 3SQ, United Kingdom, 44 1206 872756, esmith@essex.ac.uk.

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