We develop a model of firm size in which firms are unable to access as many consumers as they want. Nwely arrived consumers match randomly with firms. Subsequently consumers must pay "search costs"to be able to switch firms.

We present a model in which inflation has a systematic effect on relative prices and welfare. The model focuces on the microeconomics of trade under inflation, and in particular, the role of long-term trading relationships in markets characterized by imperfect information.