Your SlideShare is downloading. ×
The Journal Of Political Economy
Upcoming SlideShare
Loading in...5
×

Thanks for flagging this SlideShare!

Oops! An error has occurred.

×
Saving this for later? Get the SlideShare app to save on your phone or tablet. Read anywhere, anytime – even offline.
Text the download link to your phone
Standard text messaging rates apply

The Journal Of Political Economy

1,010
views

Published on


0 Comments
0 Likes
Statistics
Notes
  • Be the first to comment

  • Be the first to like this

No Downloads
Views
Total Views
1,010
On Slideshare
0
From Embeds
0
Number of Embeds
1
Actions
Shares
0
Downloads
20
Comments
0
Likes
0
Embeds 0
No embeds

Report content
Flagged as inappropriate Flag as inappropriate
Flag as inappropriate

Select your reason for flagging this presentation as inappropriate.

Cancel
No notes for slide

Transcript

  • 1. THE JOURNAL OF POLITICAL ECONOMY THE ECONOMICS OF INFORMATION George J. Stigler
  • 2. BACKDROP
    • Information is a valuable resource
    • Mostly it is ignored
    • Information producing industry ‘Advertising’ is treated with hostility
    • Important problem of information – ascertainment of market price
  • 3. NATURE OF SEARCH
    • Prices change frequently and no one will know all prices that seller will quote at given time
    • Buyer who wants to know must canvass various sellers
    • Lot of dispersion in price of the sellers
    • Price dispersion-ignorance in market
    • But not all products are completely homogeneous
  • 4. NATURE OF SEARCH
    • But its metaphysical and fruitless to say that all dispersion is due to heterogeneity
    • Buyer content with price if he wants to buy from first seller only
    • If dispersion is high (relative to cost of search) then he will canvass several sellers
    • The cost of search proportionate to number of sellers identified
  • 5. NATURE OF SEARCH
    • The cost not equal to all consumers- eg- time more important for people with higher income- optimum value found
    • Sellers can also search- optimum value
    • With unique goods efficiency of personal search is low
    • Cost of search higher in case of powerful inducement of local transactions
  • 6. NATURE OF SEARCH
    • Advertisement is important tool to identify buyers and sellers
    • Classifieds drastically reduces cost of search
    • But its expensive especially incase of goods that have few potential buyers
    • Situation where traders chief service is to provide meeting place for buyers and sellers
  • 7. DETERMINANTS OF SEARCH
    • Correlation between time and price
    • Goodwill defined as continued patronage of buyers without continued search
    • Tourists pay more for product because of lack of information
    • Dispersion is a function of average amount of search and which is a function of nature of commodity
    • Concept of pooling
  • 8. SOURCES OF DISPERSION
    • Knowledge becomes obsolete
    • Prices and demand change over time
    • Sellers cannot maintain perfect correlation because of cost of search
    • Component of ignorance due to changing identity of buyers and sellers
    • New buyers and sellers
    • Size of market
    • Monopolic source of information
  • 9. ADVERTISING
    • Method of providing potential buyers with knowledge of identity of sellers
    • Tool for eliminating ignorance
    • Advertisement to identify sellers, identify buyers, and price
    • Seller pays for advertisement because buyer does not have preference for all advertisements
    • Should buyers buy advertisement?
  • 10.
    • Cannot inform about every change in price
    • The cost of search is a cost of purchase, the consumption therefore will be smaller, the greater the dispersion of prices and greater optimum amount of search
  • 11. CONCLUSIONS
    • The identification of seller and price is just a part of search of information
    • Useful in profits, investment, quality of goods etc
    • Reputation demands price because it economizes on search
    • Ignorance is like winter- information will prevent you from cold winds

×