Cost reduction and consumer search

• Autores: Pedro Pereira
• Localización: Documentos de Trabajo (ICAE), ISSN-e 2341-2356, Nº. 5, 1998, págs. 1-24
• Idioma: inglés
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• Resumen

  • Some markets are characterized by a systematic relation between how costly it is for consumers to observe prices, market power, and incentives to reduce costs. This paper offers a model of such markets and discusses incentives to invest in cost reduction. I develop two partial equilibrium models, aue static, other dynamic, where technology is determined endogenoussly throug stochastic investment, firms set prices, entry is free and consumers search for prices. I use the static model to discuss market power and price controls and the dynamic model to discuss cost volatility and predation.