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High profit equilibria in directed search models

  • Virág, Gábor

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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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
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/622836

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  1. Butters, Gerard R, 1977. "Equilibrium Distributions of Sales and Advertising Prices," Review of Economic Studies, Wiley Blackwell, vol. 44(3), pages 465-91, October.
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  12. Peters, Michael, 1997. "A Competitive Distribution of Auctions," Review of Economic Studies, Wiley Blackwell, vol. 64(1), pages 97-123, January.
  13. Shouyong Shi, 2008. "Directed Search for Equilibrium Wage-Tenure Contracts," Working Papers tecipa-343, University of Toronto, Department of Economics.
  14. Gabor Virag, 2008. "Buyer heterogeneity and competing mechanism," 2008 Meeting Papers 702, Society for Economic Dynamics.
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