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Dynamic directed search

Author

Listed:
  • Gabriele Camera

    () (Chapman University
    University of Basel)

  • Jaehong Kim

    (Chapman University)

Abstract

Abstract The directed search model (Peters 52(5):1117–1127, 1984) is static; its dynamic extensions typically restrict strategies, often assuming price or match commitments. We lift such restrictions to study equilibrium when search can be directed over time, without constraints and at no cost. In equilibrium, trade frictions arise endogenously, and price commitments, if they do exist, are self-enforcing. In contrast to the typical model, there exists a continuum of equilibria that exhibit trade frictions. These equilibria support any price above the static price, including monopoly pricing in arbitrarily large markets. Dispersion in posted prices can naturally arise as temporary or permanent phenomenon despite the absence of preexisting heterogeneity.

Suggested Citation

  • Gabriele Camera & Jaehong Kim, 2016. "Dynamic directed search," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 62(1), pages 131-154, June.
  • Handle: RePEc:spr:joecth:v:62:y:2016:i:1:d:10.1007_s00199-015-0872-0
    DOI: 10.1007/s00199-015-0872-0
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    References listed on IDEAS

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    Cited by:

    1. Gabriele Camera & Jaehong Kim, 2018. "Equilibrium wage rigidity in directed search," Working Papers 18-04, Chapman University, Economic Science Institute.

    More about this item

    Keywords

    Frictions; Matching; Price dispersion; Search;

    JEL classification:

    • C70 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - General
    • D39 - Microeconomics - - Distribution - - - Other
    • D49 - Microeconomics - - Market Structure, Pricing, and Design - - - Other
    • E39 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Other

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