A simple model of price dispersion

This article considers a simple stock-flow matching model with fully informed market participants. Unlike the standard matching literature, prices are assumed to be set ex-ante. When sellers pre-commit themselves to sell their products at an advertised price, the unique equilibrium is characterized by price dispersion due to the idiosyncratic match payoffs (in a marketplace with full information). This provides new insights into the price dispersion literature, which instead commonly assumes that buyers are not perfectly informed and engage in a costly search. (C) 2012 Elsevier B.V. All rights reserved.