Dynamic Model of the Price Dispersion of Homogeneous Goods

Kaldasch, Joachim (2015): Dynamic Model of the Price Dispersion of Homogeneous Goods. Published in: British Journal of Economics, Management & Trade , Vol. 8, No. 2 (27 May 2015)

Abstract

Presented is an analytic microeconomic model of the temporal price dispersion of homogeneous goods in polypoly markets. This new approach is based on the idea that the price dispersion has its origin in the dynamics of the purchase process. The price dispersion is determined by the chance that demanded and supplied product units meet in a given price interval. It can be characterized by a fat-tailed Laplace distribution for short and by a lognormal distribution for long time horizons. Taking random temporal variations of demanded and supplied units into account both the mean price and also the standard deviation of the price dispersion are governed by a lognormal distribution. A comparison with empirical investigations confirms the model statements.

• Item Type: MPRA Paper
• Language: English
• Keywords: Market dynamics; price dispersion; consumer goods; lognormal distribution; Laplace distribution
• Subjects: D - Microeconomics > D0 - General; E - Macroeconomics and Monetary Economics > E3 - Prices, Business Fluctuations, and Cycles; L - Industrial Organization > L1 - Market Structure, Firm Strategy, and Market Performance

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