In frictional matching markets with heterogeneous buyers and sellers, sellers incur discrete showing costs to show goods to buyers who incur discrete inspection costs to assess the suitability of the goods on offer. This paper studies how brokers can help reduce these costs by managing the level and mix of goods in their inventory. We find that intermediaries emerge and improve social welfare when there is sufficient heterogeneity in the types of goods and preferences. Our analysis highlights how learning and inventory management enable search intermediaries to internalize information externalities generated in unintermediated private search.
|Date of creation:||05 Apr 2011|
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