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Search Costs and Equilibrium Price Dispersion in Auction Markets

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Listed:
  • Matthew R. Backus

    (Cornell University)

  • Joseph Uri Podwol

    (Economic Analysis Group, Antitrust Division, U.S. Department of Justice)

  • Henry S. Schneider

    (Cornell University)

Abstract

A leading explanation for price dispersion in posted-price markets is search costs. We incorporate this insight into a model of competing second-price auctions similar to eBay. By doing so, we extend the narrow literature on competing auctions to capture price dispersion, and grow the already vast literature on price dispersion to include auctions. We provide evidence for the model using data collected from eBay, identifying search costs by exploiting a discontinuity in the visibility of auctions due to eBay's search tool.

Suggested Citation

  • Matthew R. Backus & Joseph Uri Podwol & Henry S. Schneider, 2013. "Search Costs and Equilibrium Price Dispersion in Auction Markets," EAG Discussions Papers 201302, Department of Justice, Antitrust Division.
  • Handle: RePEc:doj:eagpap:201302
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    Cited by:

    1. Dominic Coey & Bradley J. Larsen & Brennan C. Platt, 2020. "Discounts and Deadlines in Consumer Search," American Economic Review, American Economic Association, vol. 110(12), pages 3748-3785, December.
    2. Ofer H Azar, 2015. "A Linear City Model with Asymmetric Consumer Distribution," PLOS ONE, Public Library of Science, vol. 10(6), pages 1-13, June.
    3. Donna, Javier & Schenone, Pablo & Veramendi, Gregory, 2016. "Frictions in internet auctions with many traders: A counterexample," Economics Letters, Elsevier, vol. 138(C), pages 81-84.
    4. Donna, Javier D. & Schenone, Pablo & Veramendi, Gregory F., 2020. "Networks, frictions, and price dispersion," Games and Economic Behavior, Elsevier, vol. 124(C), pages 406-431.
    5. Freeman, David J. & Kimbrough, Erik O. & Reiss, J. Philipp, 2020. "Opportunity cost, inattention and the bidder’s curse," European Economic Review, Elsevier, vol. 129(C).
    6. Matthew Backus & Tom Blake & Steven Tadelis, 2015. "Cheap Talk, Round Numbers, and the Economics of Negotiation," NBER Working Papers 21285, National Bureau of Economic Research, Inc.
    7. Podwol, Joseph Uri & Schneider, Henry S., 2016. "Nonstandard bidder behavior in real-world auctions," European Economic Review, Elsevier, vol. 83(C), pages 198-212.

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