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2021 | OriginalPaper | Chapter

On Multiplicity of Equilibria in Search Markets with Social Networks

Author : Evangelos Rouskas

Published in: Business Intelligence and Modelling

Publisher: Springer International Publishing

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Abstract

I challenge the uniqueness of the Burdett–Judd-type dispersed price equilibrium in markets with social networks by adding two new assumptions in Galeotti’s (Int Econ Rev, 51(4): 1159–1174, 2010) environment: (a) consumer heterogeneity with regard to search costs, and (b) seller prominence in the specific sense that all consumers with positive search costs who search once observe the price of the prominent seller with probability one. I demonstrate that in this modified setting there exist parameters for which multiplicity of the Burdett–Judd-type dispersed price equilibria is established. It turns out that a necessary condition for multiplicity of the Burdett–Judd-type dispersed price equilibria is that the percentage of consumers with zero search costs be relatively low. As the social networks widen, this condition becomes more restrictive.

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Footnotes
1
Fershtman and Fishman (1992, p. 1225) categorize these two dispersed price equilibria according to a stability property.
 
2
One can straightforwardly check that the uniqueness of the Burdett–Judd-type dispersed price equilibrium cannot be challenged if one adds only the consumer heterogeneity assumption and does not add the prominence assumption in Galeotti’s (2010) environment.
 
3
In this case, my model can generate one more type of equilibrium with price dispersion whereby the consumers with positive search costs observe one price with probability one. I have chosen to deemphasize this type of equilibrium.
 
4
Details are available from the author upon request.
 
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Metadata
Title
On Multiplicity of Equilibria in Search Markets with Social Networks
Author
Evangelos Rouskas
Copyright Year
2021
DOI
https://doi.org/10.1007/978-3-030-57065-1_7

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