Sorting versus Screening in Decentralized Markets with Adverse Selection

Sarah Auster () and Piero Gottardi
Additional contact information
Sarah Auster: Department of Economics, University of Bonn

No 180, ECONtribute Discussion Papers Series from University of Bonn and University of Cologne, Germany

Abstract: We study the role of traders' meeting capacities in decentralized markets with adverse selection. Uninformed customers choose trading mechanisms in order to find a provider for a service. Providers are privately informed about their quality and aim to match with one of the customers. We consider a rich set of meeting technologies and characterize the properties of the equilibrium allocations for each of them. In equilibrium, different provider types can be separated either via sorting---they self-select into different submarkets---or screening within the trading mechanism, or a combination of the two. We show that, as the meeting technology improves, the equilibrium features more screening and less sorting. Interestingly, this reduces both the average quality of trade as well as the total level of trade in the economy. The trading losses are, however, compensated by savings in entry costs, so that welfare increases.

Keywords: Competitive Search; Adverse Selection; Market Segmentation (search for similar items in EconPapers)
JEL-codes: C78 D44 D83 (search for similar items in EconPapers)
Pages: pages
Date: 2022-07
New Economics Papers: this item is included in nep-mic
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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https://www.econtribute.de/RePEc/ajk/ajkdps/ECONtribute_180_2022.pdf First version, 2022 (application/pdf)

Related works:
Journal Article: Sorting versus screening in decentralized markets with adverse selection (2024)
Working Paper: Sorting Versus Screening in Decentralized Markets With Adverse Selection (2022)
Working Paper: Sorting versus Screening in Decentralized Markets with Adverse Selection (2022)
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