Události

Prof. Ran Spiegler

Tel Aviv University, Israel
University College London, England

Authors: Ran Spiegler, Yair Antler

Abstract: In an adversely selective market model, products generate state dependent potential hidden charges and firms have differential abilities to realize this exploitative potential. Unlike firms, consumers do not observe the state. They try to infer hidden charges from headline prices, using idiosyncratic subjective models. An interior competitive equilibrium is uniquely characterized by what is formally a Bellman equation. Relative to rational expectations, equilibrium add-on charges are lower whereas the total price and social welfare are higher. Market responses to shocks display patterns that are impossible under rational expectations. For example, although fully revealing, equilibrium prices can vary with consumers’ private information.

Full Text: Competitive Markets with Imperfectly Discerning Consumers