On the welfare gains of price dispersion

Dutu, Richard, Julien, Benoit and King, Ian (2012) On the welfare gains of price dispersion. Journal of Money Credit And Banking, 44 5: 757-786. doi:10.1111/j.1538-4616.2012.00510.x


Author Dutu, Richard
Julien, Benoit
King, Ian
Title On the welfare gains of price dispersion
Journal name Journal of Money Credit And Banking   Check publisher's open access policy
ISSN 0022-2879
1538-4616
Publication date 2012-08
Year available 2012
Sub-type Article (original research)
DOI 10.1111/j.1538-4616.2012.00510.x
Open Access Status Not Open Access
Volume 44
Issue 5
Start page 757
End page 786
Total pages 30
Place of publication Hoboken, NJ, United States
Publisher Wiley-Blackwell Publishing
Language eng
Formatted abstract
Can price dispersion be associated with higher levels of welfare? To answer we compare two economies that differ only in the way prices are formed. In the first, sellers post a unique price-quantity pair, with no price dispersion. In the second, sellers post a quantity only and let prices be determined ex post by realized demand, resulting in price dispersion. We show that while agents trade lower quantities when prices are dispersed (an intensive margin effect), they also trade more often (an extensive margin effect). At low inflation, the extensive margin dominates making agents better off with price dispersion.
Keyword Price dispersion
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Money
Inflation
Welfare
Q-Index Code C1
Q-Index Status Provisional Code
Institutional Status Non-UQ

Document type: Journal Article
Sub-type: Article (original research)
Collection: School of Economics Publications
 
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Created: Thu, 17 Mar 2016, 16:28:05 EST by Karen Warren on behalf of School of Economics