An explicit solution of an equilibrium model with price-setting firms and searching customers makes possible a number of comparative-statics predictions about how cost differences among firms, search costs of customers, and taxes will affect the mean and variance of the distribution of market prices. Another implication of the model is that a firm's demand depends on the difference between its price and the average price in the market.

Results of an analysis show that the use of bonus payments in an experimental study of electricity demand is directly related to the income effects in the Slutsky equation. As with the income effect, it is not possible to predetermine the sign of the bonus effect. Theoretical results predict that if the relationship between the bonus payment and consumption of electricity is severed, then households would unambiguously increase consumption. The authors conclude that bonus plans will reduce electricity consumption and could be an alternative approach to promoting conservation. 10 references, 1 table.

An explicit solution of an equilibrium model with price-setting firms and searching customers makes possible a number of comparative-statics predictions about how cost differences among firms, search costs of customers, and taxes will affect the mean and variance of the distribution of market prices. Another implication of the model is that a firm's demand depends on the difference between its price and the average price in the market.