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INFLATION AND QUALITY DISPERSION

Published online by Cambridge University Press:  29 August 2012

Richard Dutu
Richard Dutu*
Affiliation:
World Bank and Deakin Graduate School of Business
*
Address correspondence to: Richard Dutu, Deakin Graduate School of Business, 221 Burwood Highway, 3125 Burwood, Victoria, Australia; e-mail: [email protected].
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Abstract

One questionable aspect of price posting with directed search is the strong commitment by sellers to commit to the advertised terms of trade. In this paper I explore the welfare implications of assuming that sellers cannot commit and vary the quality of their output ex post according to realized demand. I show that such lack of commitment translates into lower participation by buyers, lower average quality, and a consumption-equivalent loss of 0.3% of annual GDP.

Keywords

Directed SearchCommitmentQualityWelfare
Type
Articles
Information
Macroeconomic Dynamics , Volume 17 , Special Issue 6: Equality, Public Insurance, and Monetary Policy , September 2013 , pp. 1355 - 1365
Copyright
Copyright © Cambridge University Press 2012 

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References

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