The dynamic instability of dispersed price equilibria

• 成果类型: Article
• 署名作者: Lahkar, Ratul
• 署名单位: KREA University; IFMR - Graduate School of Business (GSB)
• 刊物名称: JOURNAL OF ECONOMIC THEORY
• ISSN/ISSBN: 0022-0531
• DOI: 10.1016/j.jet.2011.05.014
• 发表日期: 2011
• 页码: 1796-1827
• 关键词: price dispersion; evolutionary game theory; Logit dynamic

摘要

We adopt an evolutionary framework to explain price dispersion as a time varying phenomenon. By developing a finite strategy analogue of the Burdett and Judd (1983) price dispersion model, we show that all dispersed price equilibria are unstable under the class of perturbed best response dynamics. Instead, numerical simulations using the logit dynamic show that price dispersion manifests itself as a limit cycle. We verify that limit cycles persist even when the finite strategy model approaches the original continuous strategy model. For a particularly simple case of the model, we prove the existence of a limit cycle. (C) 2011 Elsevier Inc. All rights reserved.