Skimming through search

2022

Manage Decis Econ

Self Cite

I revisit Varian's (1980) model of sales by introducing bidimensional consumer heterogeneity. In my version of the model, there are (i) informed consumers with high valuation; (ii) uninformed consumers with high valuation; (iii) informed consumers with low valuation; and (iv) uninformed consumers with low valuation. Depending on parameters, always one of the following three types of equilibrium exists: the deterministic partial participation, the probabilistic partial participation, and the deterministic full participation equilibrium. My main finding is that the impact of entry on the firms' expected price may be ambiguous. For example, when the status quo number of firms generates the probabilistic partial participation equilibrium, a new entrant may either increase or decrease the expected price.

Section: Introductionmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

The effects of entry in a model of sales¹

2022

Manage Decis Econ

Self Cite

“…In the first direction, I build Coasian price-setting models of oligopoly with strategic consumers. For example, in Rouskas (2021), I maintain the two-period framework and the two-type valuation heterogeneity of the above-mentioned model of Fudenberg and Tirole, and I assume that on the demand side there is additionally two-type search-intensity heterogeneity. I find that in the first period prices are not dispersed, while in the second period price dispersion obtains.…”

Section: Discussionmentioning

confidence: 99%

“…In Rouskas (2021), intertemporal price discrimination is not supported in equilibrium when the discount factor tends to one.…”

mentioning

confidence: 99%

Mergers, multiperiod Cournot competition, and Coasian dynamics

2022

Bulletin of Econ Res

Self Cite

Under the simplifying conditions of product homogeneity, linear demand, symmetric and constant marginal costs, the static Cournot-Nash equilibrium predicts that exogenous horizontal mergers generate losses for the participants if the participants represent less than 80% of the firms in the industry. I successfully challenge the applicability of this well-known merger paradox to markets for durable goods by introducing Coasian dynamics to the quantity competition, while maintaining all other simplifying conditions. I demonstrate that exogenous mergers with a relatively small number of insiders in industries with a relatively large initial number of firms can be profitable as long as the common discount factor is sufficiently high and the decision-making horizon is sufficiently long. Unlike previous research on mergers in durable-goods industries, the significance of the decision-making horizon is emphasized; mergers that are unprofitable in a short-horizon version of my model for all values of the discount factor can prove profitable in a long-horizon version provided that agents are sufficiently patient.

“…Nevertheless, recently, I proposed a new mechanism for a decline in prices that benefits all consumers (Rouskas, 2021, hereinafter R21). In a two‐period Coasian model (Coase, 1972) with price competition, two‐type search intensity heterogeneity, and two‐type valuation heterogeneity, R21 demonstrates that when the percentage of consumers with high valuation increases, ceteris paribus , then all consumers become better off.…”

Section: Introductionmentioning

confidence: 99%

On interconsumer externalities in a model of sales

2022

The Manchester School

Self Cite

I highlight interconsumer externalities in a static model of sales with homogeneous products and bidimensional consumer heterogeneity wherein there exists two-type search intensity heterogeneity and two-type valuation heterogeneity. An increase in the percentage of consumers with high valuation creates a dichotomy in the market. The consumers who experience the increase in their valuation become better off; I call these consumers privileged. All other consumers either become worse off or remain unaffected; I call the consumers who become worse off disadvantaged and the consumers who remain unaffected unprivileged. In the environment with privileged and disadvantaged consumers, the net effect on total consumer surplus is ambiguous. These results come in contrast to a dynamic Coasian version of the model in which if the percentage of consumers with high valuation increases, always all consumers become better off. Public policy interventions that target an increase in the welfare of consumers by altering the mix of the population should (i) distinguish between dynamic and static markets; and (ii) take into account under which conditions in static markets the net effect on consumer surplus is positive.