TY - JOUR

T1 - Search theory of imperfect competition with decreasing returns to scale

AU - Menzio, Guido

N1 - Publisher Copyright:
© 2024 Elsevier Inc.

PY - 2024/6

Y1 - 2024/6

N2 - I study a version of the search-theoretic model of imperfect competition by Burdett and Judd (1983) in which sellers operate a production technology with decreasing rather than constant returns to scale. Equilibrium exists and is unique, and its structure depends on the extent of search frictions. If search frictions are large enough, the price distribution is non-degenerate and atomless. If search frictions are neither too large nor too small, the price distribution is non-degenerate with an atom at the lowest price. If search frictions are small enough, the price distribution is degenerate. Equilibrium is efficient if and only if the price distribution is degenerate. Generically, neither the structure nor the welfare properties of equilibrium are the same as in Burdett and Judd (1983). As in Burdett and Judd (1983), however, equilibrium outcomes span the spectrum from pure monopoly to perfect competition as search frictions decline.

AB - I study a version of the search-theoretic model of imperfect competition by Burdett and Judd (1983) in which sellers operate a production technology with decreasing rather than constant returns to scale. Equilibrium exists and is unique, and its structure depends on the extent of search frictions. If search frictions are large enough, the price distribution is non-degenerate and atomless. If search frictions are neither too large nor too small, the price distribution is non-degenerate with an atom at the lowest price. If search frictions are small enough, the price distribution is degenerate. Equilibrium is efficient if and only if the price distribution is degenerate. Generically, neither the structure nor the welfare properties of equilibrium are the same as in Burdett and Judd (1983). As in Burdett and Judd (1983), however, equilibrium outcomes span the spectrum from pure monopoly to perfect competition as search frictions decline.

KW - Imperfect competition

KW - Price dispersion

KW - Search frictions

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U2 - 10.1016/j.jet.2024.105827

DO - 10.1016/j.jet.2024.105827

M3 - Article

AN - SCOPUS:85189910210

SN - 0022-0531

VL - 218

JO - Journal of Economic Theory

JF - Journal of Economic Theory

M1 - 105827

ER -