Recent Publications

Paper Link Han, H., Julien, B., Petursdottir, A., & Wang, L. : Equilibrium using credit or money with indivisible goods, Journal of Economic Theory, November 2016.

Paper Link Fuleky, P., and Ventura, L.: Mean Lag in General Error Correction Models, Economics Letters, June 2016

Paper Link Kirwan, B. E., & Roberts, M. J. : Who Really Benefits from Agricultural Subsidies? American Journal of Agricultural Economics, June 2016.


Date: Friday, September 30, 2016, at 3:00-4:30 pm.
Room: Saunders 515
Title: Noisy Search for Multiple Products
Speaker: Garth Baughman
Institution: Federal Reserve Board

Almost all retailers offer multiple products, and consumers search for low prices on a basket of goods. There is a great deal of price dispersion both within and across stores offering multiple products. This paper extends a canonical model of equilibrium price dispersion, to the case of multiple products. When sequentially searching for multiple products, consumers (a) face a lower cost of search per good and (b) may capitalize on low prices for one good while continuing to search for an acceptable price on the others. This leads multi-product consumers to set one reservation price for a basket of goods, and a higher (per good) reservation price for each good alone. This paper characterizes firms' pricing decisions in light of this search behavior. In a simple version of the model where all firms offer every good, the marginal distribution of each price is unique and of the same form as would obtain in a simple single product model, and any joint distribution with support contained in the acceptance set of consumers satisfies equilibrium. This provides theoretical foundation for the common empirical focus on marginal price distributions -- as only these are determined in equilibrium. While the structure of equilibrium is unaffected by the addition of single good demanders, the addition of single good firms can lead to one of several pricing patterns depending on parameters. A consistent prediction is that, if enough firms can offer only a single good, these single product firms crowd out the bottom of the price distribution, with the interesting equilibrium effect of also lowering the highest prices charged by multi-product firms -- an effect which would not obtain in the single product case.