Price Dispersion, Information and Learning
Posted: 24 May 2004
Date Written: April 2004
We consider an economy where trade is decentralized and agents have incomplete information with respect to the value of money. Agents' learning evolves from private experiences and we explore how the formation of prices interacts with learning. We show that multiple equilibria arise, and equilibria with price dispersion entail more learning than equilibria with one price. Price dispersion increases communication about private histories, which in turn increases the overall amount of information in the economy. We also compare welfare under price dispersion and one price. Our results show that, despite the existence of some meetings where no trade takes place, welfare under price dispersion may be higher than under one price.
Keywords: Information, learning, price dispersion, private histories
JEL Classification: E00, D82, D83
Suggested Citation: Suggested Citation