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Price Equilibrium with Selling Constraints

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  • Moraga-González, José-Luis
  • Watanabe, Makoto

Abstract

This paper studies how selling constraints, which refer to the inability of firms to attend to all the buyers who want to inspect their products, affect the efficiency of competitive search equilibrium. Selling constraints matter because buyers have heterogeneous valuations that they only discover upon inspecting the product. As a result, raising the price increases the likelihood of buyers matching, but decreases their expected utility conditional on a match. We show that the equilibrium price is inefficiently high except in the (arguably unrealistic) limit where firms’ selling constraints vanish.

Suggested Citation

  • Moraga-González, José-Luis & Watanabe, Makoto, 2020. "Price Equilibrium with Selling Constraints," CEPR Discussion Papers 14718, Centre for Economic Policy Research.
    • Handle: RePEc:cpr:ceprdp:14718
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    References listed on IDEAS

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    1. Michael Choi & Anovia Yifan Dai & Kyungmin Kim, 2018. "Consumer Search and Price Competition," Econometrica, Econometric Society, vol. 86(4), pages 1257-1281, July.
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    Cited by:

    1. Atayev, Atabek, 2022. "Uncertain product availability in search markets," Journal of Economic Theory, Elsevier, vol. 204(C).

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    Keywords

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    JEL classification:

    • D4 - Microeconomics - - Market Structure, Pricing, and Design
    • J6 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers
    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance
    • L8 - Industrial Organization - - Industry Studies: Services
    • R3 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location

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