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Abstract

Search Theory has been extensively and successfully applied to explain the persistence of price dispersion. This paper presents an explicitly dynamic search model which is able to account for cyclical patterns of prices ,and demand over time. These cylical features of the model are the consequence of the dynamic strategic interaction between buyers and firms and do not require the presence of extraneous factors such as shocks or heterogeneity of agents in order to obtain. The model builds on earlier work by Burdett and Judd (1983) and may be interpreted as a dynamic extension of their model.

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