Bargaining, Search Costs and Equilibrium Price Distributions.

This paper studies a bargaining model of equilibrium price distributions. Consumers choose a seller at random and face s earch costs to switching to another store. In the market equilibrium, the prices at all stores are determined simultaneously as the perfec t equilibrium of a bargaining game. In this game, the buyer has the o utside option to search for another seller. Differences between the s ellers' types create price dispersions; typically the number of activ e sellers increases with higher search costs. The market equilibrium converges to the competitive equilibrium under perfect information wh en search costs become small. Copyright 1988 by The Review of Economic Studies Limited.