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Volkswirtschaft - Open Access LMU - Teil 03/03 Podcast
Minimum Price in Search Model

Minimum Price in Search Model

Volkswirtschaft - Open Access LMU - Teil 03/03 vor 12 Jahren

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This paper investigates the effects of a low bound price. To do so,
a popular and empirically proven model (Stahl (89') [11]) is used.
The model is extended to include an exogenously given bound on
prices sellers can offer, excluding prices below such bound. The
finding are rather surprising - when the bound is set sufficiently
high expected price offered (EPO) by sellers drops significantly.
The result seem to be robust in the parameters of the model, and
driven by the information provided to consumers by such legislation
step: when the limitation is set at sufficiently high levels all
consumers anticipate the bound price, and searchers reject any
price above it. As a result sellers offer the bound price as a pure
strategy.