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Sorting versus screening: search frictions and competing mechanisms

In a market where sellers compete by posting trading mechanisms, we allow for a general search technology and show that its features crucially affect the equilibrium mechanism. Price posting prevails when meetings are rival, i.e., when a meeting by one buyer reduces another buyer's meeting probability. Under price posting buyers reveal their type by sorting ex-ante. Only if the meeting technology is sufficiently non-rival, price posting is not an equilibrium. Multiple buyer types then visit the same sellers who screen ex-post through auctions.

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File URL: http://eprints.lse.ac.uk/29704/
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Paper provided by London School of Economics and Political Science, LSE Library in its series LSE Research Online Documents on Economics with number 29704.

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Date of creation: Jul 2010
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Publication status: Published in Journal of Economic Theory, July, 2010, 145(4), pp. 1354-1385. ISSN: 1095-7235
Handle: RePEc:ehl:lserod:29704
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