Discussion Paper
Price Information and the Economics of Consumerism: A Model of Stochastic Equilibrium
A model of a quasi-competitive industry is constructed, in which the firm’s sales are described by a random variable whose expected rate of change depends on price. It is shown that a stationary (non-degenerate) distribution of prices results, so that price differences persist over time.
It is further shown that, as consumers become more aware of, and responsive to, price differences between firms, the average price set by the (profit maximizing) firms tends to decrease, implying a reduction in the degree of monopoly in the industry.
It is further shown that, as consumers become more aware of, and responsive to, price differences between firms, the average price set by the (profit maximizing) firms tends to decrease, implying a reduction in the degree of monopoly in the industry.