OVERHEAD COST AND PRICE BEHAVIOR - THE ROLE OF MARKET INTRANSPARENCY,SEARCH, AND PRICE RANDOMIZATION

This paper investigates price setting when firms produce with increasi ng returns, and customers are imperfectly informed about prices but ca n search. A unique randomization equilibrium exists where each custome r is offered a random price by each firm known to him. If the number o f firms is fixed then the expected price to be paid by a customer resp onds countercyclically to variations of demand per customer and remain s invariant with respect to variations of the number of customers. Thi s price behavior corresponds well with new evidence on price behavior.