Wage and price controls in the equilibrium sequential search model

Rauh, Michael T.

doi:10.1016/j.euroecorev.2004.03.001

Cited by 19 publications

(19 citation statements)

References 18 publications

Supporting

Mentioning

Contrasting

Order By: Relevance

“…We see that the interaction between price ceilings and search cost levels has a significant positive effect on welfare. This supports the theoretical findings in Rauh (2004), as discussed in Section 1. Intuitively, high search costs allow for considerably higher equilibrium prices, in which case a given price ceiling is more likely binding than if search costs were lower.…”

Section: Welfaresupporting

confidence: 81%

“…A similar welfare result holds for price ceilings. This also supports results from a duopoly search model with price ceilings from Rauh (2004). We want to emphasize, however, that our simulations cannot determine necessity, only sufficiency.…”

Section: Introductionsupporting

confidence: 67%

“…Carlson and McAfee (1983) show that proportional sales taxes increase prices by a lesser degree than a per unit tax, which is completely passed on to buyers, but they do not address welfare. Rauh (2004) finds that price ceilings might increase welfare under certain conditions-dependent in part on the reduction in total search cost expenditures and the transfer of production to higher cost firms. For informative advertising, Robert and Stahl (1993) show that equilibrium price dispersion can still arise even without ex ante heterogeneities; however, they do not discuss welfare.…”

Section: Introductionmentioning

confidence: 99%

See 2 more Smart Citations

Simulating Sequential Search Models with Genetic Algorithms: Analysis of Price Ceilings, Taxes, Advertising and Welfare

McCarthy

2008

SSRN Journal

View full text Add to dashboard Cite

This paper studies advertising, price ceilings and taxes in a sequential search model with bilateral heterogeneities in production and search costs. We estimate equilibria using a genetic algorithm (GA) applied to over 100 market scenarios, each differing based on the number of firms, number of consumers, existence of price ceilings or taxes, costs of production, costs of advertising, consumers' susceptibility to advertising and consumers' search costs. We compare our equilibrium results to those of the standard theoretical consumer search literature and analyze the welfare effects of advertising, price ceilings and sales taxes. We find that price ceilings and uninformative advertising can improve welfare, especially if search costs are sufficiently high.

show abstract

Section: Welfaresupporting

confidence: 81%

Section: Introductionsupporting

confidence: 67%

Section: Introductionmentioning

confidence: 99%

See 1 more Smart Citation

Simulating Sequential Search Models with Genetic Algorithms: Analysis of Price Ceilings, Taxes, Advertising and Welfare

McCarthy

2008

SSRN Journal

View full text Add to dashboard Cite

show abstract

“…8 Rauh (2004) also analyzes regulatory price ceilings, but considers sequential search in a market where firms have heterogeneous marginal cost. In the model, introducing a price ceiling has three effects:…”

mentioning

confidence: 99%

Austrian-style gasoline price regulation: How it may backfire

Obradovits¹

2014

International Journal of Industrial Organization

View full text Add to dashboard Cite

In January 2011, a price regulation was established in the Austrian gasoline market which prohibits firms from raising their prices more than once per day. Similar restrictions have been discussed in New York State and Germany. Despite their intuitive appeal, this article argues that Austrian-type policies may actually harm consumers. In a two-period duopoly model with consumer search, I show that in face of the regulation, firms will distort their prices intertemporally in such a way that their aggregate expected profit remains unchanged. This implies that, as some consumers find it optimal to delay their purchase due to expected price savings, but find it inconvenient to do so, a friction is introduced that decreases net consumer surplus in the market.

show abstract

“…In these papers, however, search costs are restricted to be sufficiently low so that all consumers search at least once. In Janssen and Moraga-González (2004), Janssen et al (2005), and Rauh (2004) consumer participation is endogenous but the search cost heterogeneity assumed is rather special.…”

Section: Introductionmentioning

confidence: 99%

Prices, Product Differentiation, and Heterogeneous Search Costs

2014

View full text Add to dashboard Cite

Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. We study price formation in the standard model of consumer search for differentiated products but allow for search cost heterogeneity. In doing so, we dispense with the usual assumption that all consumers search at least once in equilibrium. This allows us to analyze the manner in which prices affect the decision to search rather than to not search at all, which is an important but often neglected aspect of the price mechanism. Recognizing the role the equilibrium price plays in consumers' participation decisions turns out to be critical for understanding how search costs affect market power. This is because the two margins that determine prices -the intensive search margin, or search intensity, and the extensive search margin, or search participation -may be affected in opposing directions by a change in search costs. When search costs go up, fewer consumers decide to search, which modifies the search composition of demand such that demand can become more elastic. At the same time, the consumers who choose to search reduce their search intensity, which makes demand less elastic. Whether the effect on the extensive or the intensive search margin dominates depends on the range and shape of the search cost density. We identify conditions for higher search costs to result in higher, constant, or lower prices. Similar results are obtained when the marginal gains from search vary across consumers. Terms of use: Documents in

show abstract

Wage and price controls in the equilibrium sequential search model

Cited by 19 publications

References 18 publications

Simulating Sequential Search Models with Genetic Algorithms: Analysis of Price Ceilings, Taxes, Advertising and Welfare

Simulating Sequential Search Models with Genetic Algorithms: Analysis of Price Ceilings, Taxes, Advertising and Welfare

Austrian-style gasoline price regulation: How it may backfire

Prices, Product Differentiation, and Heterogeneous Search Costs

Contact Info

Product

Resources

About