S-Space College of Social Sciences (사회과학대학) Institute of Economics Research (경제연구소) Seoul Journal of Economics Seoul Journal of Economics vol.19(3) (Fall 2006)
Multiple Equilibria in a Simple Model of Search with Entry
- Dasgupta, Sugato
- Issue Date
- Seoul Journal of Economics, Vol.19 No.3, pp. 329-342
- Diamond (1971) analyzed a goods market wherein identical buyers with unitary demand searched sequentially over identical monopolistically competitive firms. The equilibrium market price was shown to be the monopoly price. Suppose, now, that to participate in a "Diamond-market," prospective buyers are charged a small but positive entry fee. Since the market price fully extracts consumer surplus from entering buyers. no one finds it worthwhile to pay this entry fee. To study the non-trivial implications of consumer entry, I modify the Diamond-model slightly. The modified model displays two interesting features: buyers with strictly positive entry fees enter the goods market, and the goods market generates multiple equilibrium prices.