COWLES FOUNDATION FOR RESEARCH IN ECONOMICS
AT YALE UNIVERSITY

Box 208281
New Haven, CT 06520-8281

COWLES FOUNDATION DISCUSSION PAPER NO. 437

"Price Information and the Economics of Consumerism:
A Model of Stochastic Equilibrium"

John Sutton

1976

A model of a quasi-competitive industry is constructed, in which the firm’s sales are described by a random variable whose expected rate of change depends on price. It is shown that a stationary (non-degenerate) distribution of prices results, so that price differences persist over time.

It is further shown that, as consumers become more aware of, and responsive to, price differences between firms, the average price set by the (profit maximizing) firms tends to decrease, implying a reduction in the degree of monopoly in the industry.