Dynamic directed search

Gabriele Camera and Jaehong Kim
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Jaehong Kim: Chapman University

Economic Theory, 2016, vol. 62, issue 1, No 7, 154 pages

Abstract: Abstract The directed search model (Peters 52(5):1117–1127, 1984) is static; its dynamic extensions typically restrict strategies, often assuming price or match commitments. We lift such restrictions to study equilibrium when search can be directed over time, without constraints and at no cost. In equilibrium, trade frictions arise endogenously, and price commitments, if they do exist, are self-enforcing. In contrast to the typical model, there exists a continuum of equilibria that exhibit trade frictions. These equilibria support any price above the static price, including monopoly pricing in arbitrarily large markets. Dispersion in posted prices can naturally arise as temporary or permanent phenomenon despite the absence of preexisting heterogeneity.

Keywords: Frictions; Matching; Price dispersion; Search (search for similar items in EconPapers)
JEL-codes: C70 D39 D49 E39 (search for similar items in EconPapers)
Date: 2016
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Citations: View citations in EconPapers (4)

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Working Paper: Dynamic Directed Search (2015)
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DOI: 10.1007/s00199-015-0872-0

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