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Sequentially Mixed Search and Equilibrium Price Dispersion

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  • Shouyong Shi

    (Pennsylvania State University)

Abstract

Many markets feature sequentially mixed search (SMS), which has directed search in the first stage followed by noisy matching with multiple offers in the second stage. I construct a simple model of SMS, establish existence of a unique equilibrium, analyze how the two stages of SMS interact to affect quantities and price dispersion, and conduct comparative statics with respect to the meeting efficiency and the economic condition. By extending the model to endogenize search effort, I show that the equilibrium is not constrained socially efficient. Policies are introduced to restore efficiency and to manage aggregate demand and supply.

Suggested Citation

  • Shouyong Shi, 2019. "Sequentially Mixed Search and Equilibrium Price Dispersion," 2019 Meeting Papers 322, Society for Economic Dynamics.
    • Handle: RePEc:red:sed019:322
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    References listed on IDEAS

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    1. Shi, Shouyong, 2016. "Customer relationship and sales," Journal of Economic Theory, Elsevier, vol. 166(C), pages 483-516.
    2. Steven Salop & Joseph Stiglitz, 1977. "Bargains and Ripoffs: A Model of Monopolistically Competitive Price Dispersion," Review of Economic Studies, Oxford University Press, vol. 44(3), pages 493-510.
    3. Menzio, Guido & Shi, Shouyong, 2010. "Block recursive equilibria for stochastic models of search on the job," Journal of Economic Theory, Elsevier, vol. 145(4), pages 1453-1494, July.
    4. Galenianos, Manolis & Kircher, Philipp, 2009. "Directed search with multiple job applications," Journal of Economic Theory, Elsevier, vol. 144(2), pages 445-471, March.
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    6. Diamond, Peter A, 1982. "Aggregate Demand Management in Search Equilibrium," Journal of Political Economy, University of Chicago Press, vol. 90(5), pages 881-894, October.
    7. Delacroix, Alain & Shi, Shouyong, 2013. "Pricing and signaling with frictions," Journal of Economic Theory, Elsevier, vol. 148(4), pages 1301-1332.
    8. Shouyong Shi & Alain Delacroix, 2018. "Should Buyers or Sellers Trade in a Frictional Market?," 2018 Meeting Papers 254, Society for Economic Dynamics.
    9. Shouyong Shi, 2009. "Directed Search for Equilibrium Wage-Tenure Contracts," Econometrica, Econometric Society, vol. 77(2), pages 561-584, March.
    10. Shouyong Shi & Alain Delacroix, 2018. "Should Buyers or Sellers Organize Trade in a Frictional Market?," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 133(4), pages 2171-2214.
    11. Michael R. Baye & John Morgan & Patrick Scholten, 2004. "Price Dispersion In The Small And In The Large: Evidence From An Internet Price Comparison Site," Journal of Industrial Economics, Wiley Blackwell, vol. 52(4), pages 463-496, December.
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    13. Kyungmin Kim & Philipp Kircher, 2015. "Efficient Competition Through Cheap Talk: The Case of Competing Auctions," Econometrica, Econometric Society, vol. 83(5), pages 1849-1875, September.
    14. Moen, Espen R, 1997. "Competitive Search Equilibrium," Journal of Political Economy, University of Chicago Press, vol. 105(2), pages 385-411, April.
    15. Shilony, Yuval, 1977. "Mixed pricing in oligopoly," Journal of Economic Theory, Elsevier, vol. 14(2), pages 373-388, April.
    16. James D. Montgomery, 1991. "Equilibrium Wage Dispersion and Interindustry Wage Differentials," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 106(1), pages 163-179.
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    Cited by:

    1. Kennes, John & le Maire, Daniel & Roelsgaard, Sebastian T., 2020. "Equivalence of canonical matching models," Games and Economic Behavior, Elsevier, vol. 124(C), pages 169-182.

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