Intransparent Prices: A Model of Intra-Industry Trade due to Incomplete Information
نویسنده
چکیده
Buyers are typically unaware of the full set of offers when making a purchase. This paper examines how international trade interacts with this problem of incomplete information. Sellers must communicate their offers through costly price posting, but cannot reach all buyers. Consequently, no market clearing price exists, and sellers randomize over an equilibrium price distribution. Letting sellers communicate their offers abroad leads to international trade, which would not take place under perfect information. Buyers then receive more offers, leading to (stochastically) lower prices and welfare gains. Sellers in the model are identical, but appear heterogeneous due to their price randomization.
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