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How to segment a search market: information design and directed search

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  • Mekonnen, Teddy

    (Department of Economics, Brown University)

Abstract

This paper examines when the public provision of information in search markets improves welfare. I consider a two-sided frictional search market in which buyers match with vertically differentiated sellers. The market is segmented into submarkets based on seller types. Such segmentation serves as a public signal that buyers use to direct their search. Given a segmentation, I characterize both the socially efficient and the equilibrium allocation of buyers across submarkets, and identify a Hosios-type condition under which the equilibrium allocation is efficient. I then analyze the design of surplus-maximizing segmentations, showing that the nature of search externalities determines when the constrained-efficient segmentation fully separates seller types or pools them into at most a binary partition.

Suggested Citation

  • Mekonnen, Teddy, 0. "How to segment a search market: information design and directed search," Theoretical Economics, Econometric Society.
    • Handle: RePEc:the:publsh:5350
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    Keywords

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    JEL classification:

    • C78 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Bargaining Theory; Matching Theory
    • D62 - Microeconomics - - Welfare Economics - - - Externalities
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness

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