TY  - JOUR
AU  - Benabou,Roland
AU  - Gertner,Robert
TI  - The Informativeness of Prices: Search With Learning and Cost Uncertainty
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 3833
PY  - 1991
Y2  - September 1991
UR  - http://www.nber.org/papers/w3833
L1  - http://www.nber.org/papers/w3833.pdf
N1  - Author contact info:
Roland Benabou
Department of Economics
and Woodrow Wilson School
Princeton University
Princeton, NJ 08544
Tel: 609/258-3672
Fax: 609/258-5533
E-Mail: rbenabou@princeton.edu

Robert Gertner
Graduate School of Business
The University of Chicago
5807 S. Woodlawn Ave.
Chicago, IL 60637
Tel: 773/702-7203
Fax: 773/702-0118;773/702-0458
E-Mail: rob.gertner@chicagobooth.edu
AB  - Aggregate cost uncertainty, arising from real shocks or unanticipated inflation, reduces the informativeness of prices by scrambling relative and aggregate variations. But when agents can acquire additional information, such increased noise may in fact lead them to become better informed, and price competition will intensify. We examine these issues in a model of search with learning, where consumers search optimally from an unknown price distribution while firms price optimally given consumers' search rules. We show that the decisive factor in whether inflation variability increases or reduces the incentive to search, and thereby market efficiency, is the size of informational costs.
ER  -