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Commitment and Costly Signalling in Decentralized Markets

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  • Derek G. Stacey

    () (Department of Economics, Ryerson University, Toronto, Canada)

Abstract

I propose a model of a decentralized market using a search framework with asymmetric information in which sellers are unable to commit to asking prices announced ex ante. Relaxing the commitment assumption prevents sellers from using price posting as a signalling device to direct buyers' search. Private information about the gains from trade and inefficient entry on the demand side then contribute to market illiquidity. Endogenous sorting among costly marketing platforms can facilitate the search process by segmenting the market to alleviate information frictions. Seemingly irrelevant but incentive compatible listing fees are implementable as long as the market is not already sufficiently active. The theoretical implications are qualitatively consistent with the empirical observations of real estate brokerage in housing markets: listing fees, platform differentiation, and endogenous sorting based on seller motivation.

Suggested Citation

  • Derek G. Stacey, 2014. "Commitment and Costly Signalling in Decentralized Markets," Working Papers 060, Ryerson University, Department of Economics, revised Nov 2015.
  • Handle: RePEc:rye:wpaper:wp060
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    References listed on IDEAS

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    1. Kihlstrom, Richard E & Riordan, Michael H, 1984. "Advertising as a Signal," Journal of Political Economy, University of Chicago Press, vol. 92(3), pages 427-450, June.
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    Cited by:

    1. Yu Chen & Matthew Doyle & Francisco Gonzalez, 2019. "Bad Jobs," Working Papers 1902, University of Waterloo, Department of Economics, revised Jan 2019.
    2. Yu (Sonja) Chen & Matthew Doyle & Francisco M. Gonzalez, "undated". "Mismatch as choice," Working Papers 2017-04, Department of Economics, University of Calgary, revised 15 May 2017.
      • Francisco M. Gonzalez & Yu Chen & Matthew Doyle, 2017. "Mismatch As Choice," Working Papers 1702, University of Waterloo, Department of Economics, revised May 2017.
    3. Derek Stacey, 2019. "Posted Prices, Search and Bargaining," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 33, pages 85-104, July.
    4. Randall Wright & Philipp Kircher & Benoit Julîen & Veronica Guerrieri, 2017. "Directed Search: A Guided Tour," NBER Working Papers 23884, National Bureau of Economic Research, Inc.
    5. Lu Han & Chandler Lutz & Benjamin Sand & Derek Stacey, 2018. "Do Financial Constraints Cool a Housing Boom?," Working Papers 073, Ryerson University, Department of Economics.

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    More about this item

    Keywords

    Search; Costly Signalling; Efficiency; Housing;
    All these keywords.

    JEL classification:

    • C78 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Bargaining Theory; Matching Theory
    • D40 - Microeconomics - - Market Structure, Pricing, and Design - - - General
    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • R31 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - Housing Supply and Markets

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