Sequentially Mixed Search and Equilibrium Price Dispersion

56 Pages Posted: 23 Nov 2018 Last revised: 9 Mar 2022

See all articles by Shouyong Shi

Shouyong Shi

Pennsylvania State University

Date Written: October 8, 2018

Abstract

Many markets feature sequentially mixed search (SMS), which has directed search for an offer distribution followed by noisy matching with multiple offers. I construct a tractable model of SMS, establish existence of a unique equilibrium, and analyze the novel implications of the equilibrium on quantities and price dispersion. Moreover, I show that an increase in the meeting efficiency widens price dispersion. An extension endogenizing search effort shows that the equilibrium is constrained inefficient, where visitors' search effort is inefficiently high and can be a strategic complement. Under a mild condition, policies that restore efficiency should lean against the wind by increasing the tax on the joint value of trade in an economic boom and reducing this tax in a recession.

Keywords: Sequentially mixed search, Price dispersion, Efficiency

JEL Classification: D40, D60, D83

Suggested Citation

Shi, Shouyong, Sequentially Mixed Search and Equilibrium Price Dispersion (October 8, 2018). Available at SSRN: https://ssrn.com/abstract=3262935 or http://dx.doi.org/10.2139/ssrn.3262935

Shouyong Shi (Contact Author)

Pennsylvania State University ( email )

University Park
State College, PA 16802
United States

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