Citation:
Journal of Economic Theory. 2005, vol. 122, nº 1, p. 60-99
ISSN:
0022-0531
DOI:
10.1016/j.jet.2004.04.002
Sponsor:
Financial support from SSHRC of Canada (Grant 410010028) and
DGCYT of Spain (projects BEC2002-00642,BEC2000-01 72 and HI2001-0039) is gratefully acknowledged.
The theory of commerce advanced here captures prominent features of retail trade: large employment, congestion effects, anonymous posted prices, and quantity discounts. This theory is built around a directed search model where buyers’ preferences are private iThe theory of commerce advanced here captures prominent features of retail trade: large employment, congestion effects, anonymous posted prices, and quantity discounts. This theory is built around a directed search model where buyers’ preferences are private information. The analytical solution is easily inserted in a Neoclassical growth framework. In this framework, the parameters of retail trade are calibrated using commercial margins and employment. Welfare properties depend on the sellers’ ability to charge two-tier prices. With two-tier prices, the directed search equilibrium is efficient. Otherwise, it is not. This contrasts with the full information benchmark, where directed search is always efficient.[+][-]