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Directed Search and Optimal Production

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  • Athanasios Geromichalos

    (Department of Economics, University of California Davis)

Abstract

I consider a model of directed search in which strategic sellers advertise general trading mechanisms. A mechanism determines the number of buyers that will get served and the side payments as a function of ex post realized demand. After observing these advertisements buyers simultaneously visit exactly one seller. Each buyer’s expected utility depends on the visiting decisions of other buyers. This dependence becomes especially interesting since the buyers cannot coordinate their visiting strategies. Despite the presence of strategic interaction among the sellers all symmetric equilibria are constrained efficient but not payoff equivalent. Therefore, authorities should intervene in this type of market to redistribute surplus and not to improve efficiency. As markets grow infinitely large all equilibria yield the same profit. For the large market case I provide conditions under which only a very simple class of mechanisms is posted in equilibrium.

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Bibliographic Info

Paper provided by University of California, Davis, Department of Economics in its series Working Papers with number 1016.

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Length: 35
Date of creation: 24 Aug 2010
Date of revision:
Handle: RePEc:cda:wpaper:10-16

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Keywords: directed search; efficiency; multiplicity of equilibrium;

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References

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  1. Julien, B. & Kennes, J. & King, I., 1998. "Bidding for Labour," Discussion Papers dp98-03, Department of Economics, Simon Fraser University.
  2. Larry Epstein & Michael Peters, 1996. "A Revelation Principle For Competing Mechanisms," Working Papers peters-96-02, University of Toronto, Department of Economics.
  3. Michael Peters, 1995. "A Competitive Distribution of Auctions," Working Papers peters-95-03, University of Toronto, Department of Economics.
  4. Hosios, Arthur J, 1990. "On the Efficiency of Matching and Related Models of Search and Unemployment," Review of Economic Studies, Wiley Blackwell, vol. 57(2), pages 279-98, April.
  5. 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.
  6. McAfee, R Preston, 1993. "Mechanism Design by Competing Sellers," Econometrica, Econometric Society, vol. 61(6), pages 1281-1312, November.
  7. Lang, Kevin, 1991. "Persistent Wage Dispersion and Involuntary Unemployment," The Quarterly Journal of Economics, MIT Press, vol. 106(1), pages 181-202, February.
  8. Manolis Galenianos & Philipp A. Kircher, 2005. "Directed Search with Multiple Job Applications," Bonn Econ Discussion Papers bgse20_2005, University of Bonn, Germany.
  9. Coles, Melvyn G. & Eeckhout, Jan, 2003. "Indeterminacy and directed search," Journal of Economic Theory, Elsevier, vol. 111(2), pages 265-276, August.
  10. Daron Acemoglu & Robert Shimer, 1998. "Holdups and Efficiency with Search Frictions," Working papers 98-14, Massachusetts Institute of Technology (MIT), Department of Economics.
  11. Mortensen, Dale T & Pissarides, Christopher A, 1994. "Job Creation and Job Destruction in the Theory of Unemployment," Review of Economic Studies, Wiley Blackwell, vol. 61(3), pages 397-415, July.
  12. Moen, E.R., 1995. "Competitive Search Equilibrium," Memorandum 37/1995, Oslo University, Department of Economics.
  13. Prescott, Edward C, 1975. "Efficiency of the Natural Rate," Journal of Political Economy, University of Chicago Press, vol. 83(6), pages 1229-36, December.
  14. Jacquet, Nicolas L. & Tan, Serene, 2012. "Wage-vacancy contracts and coordination frictions," Journal of Economic Theory, Elsevier, vol. 147(3), pages 1064-1104.
  15. Watanabe, Makoto, 2010. "A model of merchants," Journal of Economic Theory, Elsevier, vol. 145(5), pages 1865-1889, September.
  16. Daron Acemoglu & Robert Shimer, 1999. "Efficient Unemployment Insurance," Journal of Political Economy, University of Chicago Press, vol. 107(5), pages 893-928, October.
  17. Montgomery, James D, 1991. "Equilibrium Wage Dispersion and Interindustry Wage Differentials," The Quarterly Journal of Economics, MIT Press, vol. 106(1), pages 163-79, February.
  18. Serene Tan, 2012. "Directed Search And Firm Size," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 53(1), pages 95-113, 02.
  19. Ricardo Lagos, 2000. "An Alternative Approach to Search Frictions," Journal of Political Economy, University of Chicago Press, vol. 108(5), pages 851-873, October.
  20. 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.
  21. Lester, Benjamin, 2010. "Directed search with multi-vacancy firms," Journal of Economic Theory, Elsevier, vol. 145(6), pages 2108-2132, November.
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Cited by:
  1. Manolis Galenianos & Philipp Kircher, 2012. "On the game-theoretic foundations of competitive search equilibrium," LSE Research Online Documents on Economics 29707, London School of Economics and Political Science, LSE Library.
  2. Athanasios Geromichalos, 2012. "Directed Search and the Bertrand Paradox," Working Papers 1221, University of California, Davis, Department of Economics.
  3. Klaus Kultti & Mats Godenhielm, 2011. "Directed search with endogenous capacity," 2011 Meeting Papers 1025, Society for Economic Dynamics.
  4. Athanasios Geromichalos, 2012. "Unemployment Insurance and Optimal Taxation in Search Models of the Labor Market," Working Papers 1218, University of California, Davis, Department of Economics.

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