Suppose that a college town has a large number of firms selling a homogeneous product—pizza—and that there are two types of consumers in the town. The town’s permanent residents are fully informed about the prices charged by all firms and always shop at the firm or firms with the lowest price. On the other hand, the students attending college in the town (temporary residents) are completely uninformed; they do not know anything about prices and simply choose among firms on a random basis. Explain why, in such a setting, a single price may prevail in the market for pizza.

  • CreatedNovember 14, 2014
  • Files Included
Post your question