COMMITMENT AND COSTLY SIGNALING IN DECENTRALIZED MARKETS

Derek Stacey

International Economic Review, 2016, vol. 57, issue 4, 1507-1533

Abstract: I propose a search model of a decentralized market with asymmetric information in which sellers are unable to commit to asking prices announced ex ante. Relaxing the commitment assumption prevents sellers from using price posting as a signaling device to direct buyers' search. Private information about the gains from trade and inefficient entry on the demand side then contribute to market illiquidity. Endogenous sorting among costly marketing platforms can facilitate the search process by segmenting the market to alleviate information frictions. Seemingly irrelevant but incentive compatible listing fees are implementable provided that the market is not already sufficiently active.

Date: 2016
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https://doi.org/10.1111/iere.12206

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Working Paper: Commitment and Costly Signalling in Decentralized Markets (2015)
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