Agostino Manduchi, Jönköping University

"Search and price dispersion with rationally inattentive buyers"

Abstract

I investigate a model in which inattentive buyers can elicit price offers before purchasing a product. Inattentiveness follows from the cost of the attention that the buyers devote to their price-gathering problem. The only equilibrium of a version of the model with fully attentive buyers features the "Diamond paradox" of monopoly pricing, in which each buyer elicits a single offer. By contrast, the model of the paper features an active equilibrium with price dispersion, in which some buyers elicit multiple prices. The limiting behavior for a vanishing cost of attention is also considered.

Contact person: Egor Starkov