American Economic Review
ISSN 0002-8282 (Print) | ISSN 1944-7981 (Online)
Information and Prices with Capacity Constraints
American Economic Review
vol. 101,
no. 4, June 2011
(pp. 1591–1600)
Abstract
In the theoretical literature on consumer search, one conclusion is nearly universal: as buyers become better able to observe and compare prices ex ante, sellers will set lower prices in equilibrium. In this paper, I examine a standard consumer search model with one small -- yet often relevant -- additional restriction: I assume that sellers are capacity constrained. In this environment, I illustrate that the conventional wisdom regarding information and prices does not necessarily hold: having more informed consumers can lead to a decrease in prices, have no effect at all, or even lead to an increase in prices.Citation
Lester, Benjamin. 2011. "Information and Prices with Capacity Constraints." American Economic Review, 101 (4): 1591–1600. DOI: 10.1257/aer.101.4.1591Additional Materials
JEL Classification
- D11 Consumer Economics: Theory
- D83 Search; Learning; Information and Knowledge; Communication; Belief
- L11 Production, Pricing, and Market Structure; Size Distribution of Firms