Equilibrium Search Models as Simultaneous Move Games

Abstract

In many of the existing equilibrium search models, sellers as a group are leaders and buyers as a group are followers to the extent that the latter are assumed to know the distribution of prices but not the price-seller correspondence before they make their information acquisition decisions. A natural way to weaken this strong version of "rational expectations" is to treat the problem as a simultaneous move game in which buyers must make their information acquisition decisions before they see the actual distribution of prices. This paper explores the implications of this modification of the existing literature in the context of Salop and Stiglitz's well-known model of monopoliatically competitive price dispersion (1977) and the model of equilibrium comparison shopping due to Wilde and Schwartz (1979). It considers both finitely many consumers and arbitrarily large numbers of consumers in both cases, and characterizes necessary and sufficient conditions for the existence of various mixed and pure strategy equilibria in each case. This yields a coherent integration of many of the known results as well as the derivation of a number of new results.

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