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High profit equilibria in directed search models

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  • Virág, Gábor

Abstract

We consider a model of directed search where the sellers are allowed to post mechanisms with entry fees. Regardless of the number of buyers and sellers, the sellers are able to extract all the surplus of the buyers by introducing entry fees and making price schedules positively sloped in the number of buyers arriving to their shops. This is in contrast to results that are achieved for large markets under the assumption that sellers cannot influence the utility of any particular buyer (market utility assumption), in which case buyers obtain strictly positive rents. If there is a bound on the prices or on the entry fees that can be charged, then the equilibrium with full rent extraction does not exist any more, and the market utility assumption is restored for large markets.

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Bibliographic Info

Article provided by Elsevier in its journal Games and Economic Behavior.

Volume (Year): 71 (2011)
Issue (Month): 1 (January)
Pages: 224-234

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Handle: RePEc:eee:gamebe:v:71:y:2011:i:1:p:224-234

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Web page: http://www.elsevier.com/locate/inca/622836

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Keywords: Competing mechanisms Large markets Market utility assumption Unbounded prices;

References

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  1. Peters, Michael, 1984. "Bertrand Equilibrium with Capacity Constraints and Restricted Mobility," Econometrica, Econometric Society, vol. 52(5), pages 1117-27, September.
  2. Virág, Gábor, 2010. "Competing auctions: finite markets and convergence," Theoretical Economics, Econometric Society, vol. 5(2), May.
  3. Shouyong Shi, 2008. "Directed Search for Equilibrium Wage-Tenure Contracts," Working Papers tecipa-343, University of Toronto, Department of Economics.
  4. Michael Peters, 1998. "Limits of Exact Equilibria for Capacity Constrained Sellers with costlySearch," Working Papers peters-98-01, University of Toronto, Department of Economics.
  5. Michael Peters & Sergei Severinov, 1995. "Competition Among Sellers who offer Auctions Instead of Prices," Working Papers peters-95-02, University of Toronto, Department of Economics.
  6. Kenneth Burdett & Shouyong Shi & Randall Wright, 2001. "Pricing and Matching with Frictions," Journal of Political Economy, University of Chicago Press, vol. 109(5), pages 1060-1085, October.
  7. Larry Epstein & Michael Peters, 1996. "A Revelation Principle For Competing Mechanisms," Working Papers peters-96-02, University of Toronto, Department of Economics.
  8. Kultti, K.K., 1997. "Equivalence of Auctions and Posted Prices," Discussion Paper 1997-57, Tilburg University, Center for Economic Research.
  9. Peters, Michael, 1997. "A Competitive Distribution of Auctions," Review of Economic Studies, Wiley Blackwell, vol. 64(1), pages 97-123, January.
  10. Butters, Gerard R, 1977. "Equilibrium Distributions of Sales and Advertising Prices," Review of Economic Studies, Wiley Blackwell, vol. 44(3), pages 465-91, October.
  11. McAfee, R Preston, 1993. "Mechanism Design by Competing Sellers," Econometrica, Econometric Society, vol. 61(6), pages 1281-1312, November.
  12. Burdett, Kenneth & Judd, Kenneth L, 1983. "Equilibrium Price Dispersion," Econometrica, Econometric Society, vol. 51(4), pages 955-69, July.
  13. Gabriele Camera & Cemil Selcuk, 2009. "Price Dispersion with Directed Search," Journal of the European Economic Association, MIT Press, vol. 7(6), pages 1193-1224, December.
  14. Burguet, Roberto & Sakovics, Jozsef, 1999. "Imperfect Competition in Auction Designs," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 40(1), pages 231-47, February.
  15. Diamond, Peter A., 1971. "A model of price adjustment," Journal of Economic Theory, Elsevier, vol. 3(2), pages 156-168, June.
  16. Coles, Melvyn G. & Eeckhout, Jan, 2003. "Indeterminacy and directed search," Journal of Economic Theory, Elsevier, vol. 111(2), pages 265-276, August.
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Cited by:
  1. Gabriele Camera & Jaehong Kim, 2012. "Buyer's Equilibrium with Capacity Constraints and Restricted Mobility: a Recursive Approach," Working Papers 12-28, Chapman University, Economic Science Institute.

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