Hidden advertisement, signaling, and directed search

Ji-Woong Moon ()
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Ji-Woong Moon: Korea Institute of Public Finance

Economic Theory, 2025, vol. 79, issue 1, No 2, 57-87

Abstract: Abstract This paper studies a directed search model where sellers have limited capacities, and buyers cannot observe the varying number of advertisements each seller sends. In the presence of this asymmetric information, the limit purchase and selling probabilities as the market size increases are derived. The limit equilibrium is fully separating, where sellers with low advertisement intensity choose a lower price to signal. The equilibrium is not constrained inefficient, and equilibrium welfare is higher either when advertisements are highly costly or free. Buyers are better off in equilibrium than in the efficient allocation due to the lower price and benefit from more expensive advertisements.

Keywords: Advertisement; Signaling; Directed search; Welfare (search for similar items in EconPapers)
JEL-codes: D40 D82 D83 M37 (search for similar items in EconPapers)
Date: 2025
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DOI: 10.1007/s00199-023-01542-9

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