Price Dispersion, Information and Learning

Posted: 24 May 2004

See all articles by Luis F. Araujo

Luis F. Araujo

Michigan State University - Department of Economics

Andrei Shevchenko

Michigan State University - Department of Economics

Date Written: April 2004

Abstract

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

Araujo, Luis Fernando and Shevchenko, Andrei, Price Dispersion, Information and Learning (April 2004). Available at SSRN: https://ssrn.com/abstract=548784

Luis Fernando Araujo (Contact Author)

Michigan State University - Department of Economics ( email )

101 Marshall Hall
East Lansing, MI 48824
United States
517-355-7583 (Phone)
517-432-1068 (Fax)

Andrei Shevchenko

Michigan State University - Department of Economics ( email )

211 Marshall Hall
East Lansing, MI 48824
United States
517-353-5007 (Phone)
517-432-1068 (Fax)

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