Orzen, Henrik; Sefton, Martin - In: German Economic Review 4 (2003) 11, pp. 497-501
We present a model of equilibrium price dispersion in which a per-unit subsidy to buyers can reduce average prices. The reason is that subsidies have two effects on average prices that work in opposite directions. First, subsidies raise buyers' willingness-to-pay, and by itself this causes firms...