Buyers' Ability and Willingness to Shop Around: An Explanation for Price Dispersion
For many years, economists have observed substantial and pervasive price dispersion — wide variations in price for the same product. Some economists have attributed price dispersion to "ignorance in the market," a lack of information among buyers and sellers. More recently, economists at the Richmond Fed and the University of Pennsylvania have developed a model that combines price dispersion theory with intertemporal price discrimination theory to suggest that buyers' differing ability and willingness to shop around might explain price dispersion.
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