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Directed Search with Endogenous Capacity

Listed author(s):
  • Godenhielm Mats

    ()

  • Kultti Klaus

    ()

    (Department of Political and Economic Studies and HECER, University of Helsinki, P.O. Box 17, Helsinki 00014, Finland)

We study a large economy where capacity-constrained sellers post prices to attract buyers. Capacity is costly and each seller chooses how many units to stock, which allows us to study the relationship between search frictions and capacity. We show that no equilibrium exists with linear costs; however, sufficiently convex costs are enough for existence. There may be several equilibria, but we show that the equilibrium payoffs to the agents are unique as well as constrained efficient. Finally, we numerically analyze how the magnitude of search frictions is affected by the capacity choices of the firms.

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Article provided by De Gruyter in its journal The B.E. Journal of Theoretical Economics.

Volume (Year): 15 (2015)
Issue (Month): 2 (July)
Pages: 211-249

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Handle: RePEc:bpj:bejtec:v:15:y:2015:i:2:p:211-249:n:5
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  1. Kultti, Klaus, 1999. "Equivalence of Auctions and Posted Prices," Games and Economic Behavior, Elsevier, vol. 27(1), pages 106-113, April.
  2. McAfee, R Preston, 1993. "Mechanism Design by Competing Sellers," Econometrica, Econometric Society, vol. 61(6), pages 1281-1312, November.
  3. Klaus Kultti, 2003. "Comparison of Auctions and Posted Prices in a Finite Random Matching Model," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 159(3), pages 457-457, September.
  4. Lester, Benjamin, 2010. "Directed search with multi-vacancy firms," Journal of Economic Theory, Elsevier, vol. 145(6), pages 2108-2132, November.
  5. William B. Hawkins, 2013. "Competitive Search, Efficiency, And Multiworker Firms," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 54(1), pages 219-251, 02.
  6. Kultti Klaus, 2011. "Sellers Like Clusters," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 11(1), pages 1-28, December.
  7. Geromichalos, Athanasios, 2012. "Directed search and optimal production," Journal of Economic Theory, Elsevier, vol. 147(6), pages 2303-2331.
  8. 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.
  9. Selcuk, Cemil, 2012. "Trading mechanism selection with directed search when buyers are risk averse," Economics Letters, Elsevier, vol. 115(2), pages 207-210.
  10. Peters, Michael, 1991. "Ex Ante Price Offers in Matching Games Non-steady States," Econometrica, Econometric Society, vol. 59(5), pages 1425-1454, September.
  11. Watanabe, Makoto, 2010. "A model of merchants," Journal of Economic Theory, Elsevier, vol. 145(5), pages 1865-1889, September.
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