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Information Externalities and Intermediaries in Frictional Search Markets

  • Xianwen Shi
  • Aloysius Siow

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. We study how brokers can help reduce these costs by managing the level and mix of goods in their inventory. Intermediaries emerge and improve social welfare when there is sufficient heterogeneity in the types of goods and preferences. Learning and inventory management enable search intermediaries to internalize information externalities generated in unintermediated private search.

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Paper provided by University of Toronto, Department of Economics in its series Working Papers with number tecipa-496.

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Length: Unknown pages
Date of creation: 10 Sep 2013
Date of revision:
Handle: RePEc:tor:tecipa:tecipa-496
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  1. Camera, Gabriele & Delacroix, Alain, 2003. "Trade Mechanism Selection in Markets with Frictions," Purdue University Economics Working Papers 1166, Purdue University, Department of Economics.
  2. Alok Johri & Lohn Leach, 2000. "Middlemen and the Allocation of Heterogeneous Goods," Department of Economics Working Papers 2000-06, McMaster University.
  3. Li, Yiting, 1998. "Middlemen and private information," Journal of Monetary Economics, Elsevier, vol. 42(1), pages 131-159, June.
  4. Morgan, Peter & Manning, Richard, 1985. "Optimal Search," Econometrica, Econometric Society, vol. 53(4), pages 923-44, July.
  5. Shouyong Shi, 1995. "Money and Prices: A Model of Search and Bargaining," Working Papers 916, Queen's University, Department of Economics.
  6. Spulber, Daniel F, 1996. "Market Making by Price-Setting Firms," Review of Economic Studies, Wiley Blackwell, vol. 63(4), pages 559-80, October.
  7. Wheaton, William C, 1990. "Vacancy, Search, and Prices in a Housing Market Matching Model," Journal of Political Economy, University of Chicago Press, vol. 98(6), pages 1270-92, December.
  8. Trejos, Alberto & Wright, Randall, 1995. "Search, Bargaining, Money, and Prices," Journal of Political Economy, University of Chicago Press, vol. 103(1), pages 118-41, February.
  9. Jeffrey H. Fischer & Joseph E. Harrington Jr., 1996. "Product Variety and Firm Agglomeration," RAND Journal of Economics, The RAND Corporation, vol. 27(2), pages 281-309, Summer.
  10. Alp E. Atakan, 2006. "Assortative Matching with Explicit Search Costs," Econometrica, Econometric Society, vol. 74(3), pages 667-680, 05.
  11. Edward A. Baryla & Leonard V. Zumpano, 1995. "Buyer Search Duration in the Residential Real Estate Market: The Role of the Real Estate Agent," Journal of Real Estate Research, American Real Estate Society, vol. 10(1), pages 1-14.
  12. B. Douglas Bernheim & Jonathan Meer, 2007. "How Much do Real Estate Brokers Add? A Case Study," Discussion Papers 06-041, Stanford Institute for Economic Policy Research.
  13. Igal Hendel & Aviv Nevo & François Ortalo-Magné, 2009. "The Relative Performance of Real Estate Marketing Platforms: MLS versus FSBOMadison.com," American Economic Review, American Economic Association, vol. 99(5), pages 1878-98, December.
  14. Gehrig, Thomas, 1993. "Intermediation in Search Markets," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 2(1), pages 97-120, Spring.
  15. John Rust & George Hall, 2002. "Middlemen versus Market Makers: A Theory of Competitive Exchange," NBER Working Papers 8883, National Bureau of Economic Research, Inc.
  16. repec:cup:cbooks:9780521736602 is not listed on IDEAS
  17. Sushil Bikhchandani & David Hirshleifer & Ivo Welch, 1998. "Learning from the Behavior of Others: Conformity, Fads, and Informational Cascades," Journal of Economic Perspectives, American Economic Association, vol. 12(3), pages 151-170, Summer.
  18. Asher Wolinsky, 1983. "Retail Trade Concentration Due to Consumers' Imperfect Information," Bell Journal of Economics, The RAND Corporation, vol. 14(1), pages 275-282, Spring.
  19. Diamond, Douglas W, 1984. "Financial Intermediation and Delegated Monitoring," Review of Economic Studies, Wiley Blackwell, vol. 51(3), pages 393-414, July.
  20. Gary Biglaiser, 1993. "Middlemen as Experts," RAND Journal of Economics, The RAND Corporation, vol. 24(2), pages 212-223, Summer.
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