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Information Externalities and Intermediaries in Frictional Search Markets

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  • Xianwen Shi
  • Aloysius Siow

Abstract

In frictional matching markets with heterogeneous buyers and sellers, sellers incur discrete showing costs to show goods to buyers who incur discrete inspection costs to assess the suitability of the goods on offer. We study how brokers can help reduce these costs by managing the level and mix of goods in their inventory. Intermediaries emerge and improve social welfare when there is sufficient heterogeneity in the types of goods and preferences. Learning and inventory management enable search intermediaries to internalize information externalities generated in unintermediated private search.

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Bibliographic Info

Paper provided by University of Toronto, Department of Economics in its series Working Papers with number tecipa-496.

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Length: Unknown pages
Date of creation: 10 Sep 2013
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Handle: RePEc:tor:tecipa:tecipa-496

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Keywords: Search; Intermediation; Brokers; Housing Markets;

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  17. Jeffrey H. Fischer & Joseph E. Harrington Jr., 1996. "Product Variety and Firm Agglomeration," RAND Journal of Economics, The RAND Corporation, vol. 27(2), pages 281-309, Summer.
  18. Sushil Bikhchandani & David Hirshleifer & Ivo Welch, 1998. "Learning from the Behavior of Others: Conformity, Fads, and Informational Cascades," Journal of Economic Perspectives, American Economic Association, vol. 12(3), pages 151-170, Summer.
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  20. Li, Yiting, 1998. "Middlemen and private information," Journal of Monetary Economics, Elsevier, vol. 42(1), pages 131-159, June.
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