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Informational Cycles in Search Markets

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Abstract

I study a sequential search model where buyers face an unknown distribution of offers and learn about the distribution from other buyers' actions. Each buyer observes whether a randomly chosen buyer traded in the previous period. I show that a cyclical equilibrium exists where the informational content of observing a trade fluctuates: a trade is good news about the distribution in every other period and bad news in the remaining periods. This leads to fluctuations in the volume and probability of trading. They fluctuate more if the unknown distribution is bad rather than good. A steady-state equilibrium where buyers are more likely to continue searching than in the cyclical equilibrium is less efficient than the cyclical equilibrium. A market that starts at date one converges to the cyclical equilibrium for some parameter values.

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  • Eeva Mauring, 2017. "Informational Cycles in Search Markets," Vienna Economics Papers vie1708, University of Vienna, Department of Economics.
    • Handle: RePEc:vie:viennp:vie1708
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    Cited by:

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    More about this item

    JEL classification:

    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • L15 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Information and Product Quality
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles

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