How to Segment a Search Market: Information Design and Directed Search

Teddy Mekonnen

Papers from arXiv.org

Abstract: This paper examines when the public provision of information in search markets improves welfare. I consider a two-sided frictional search market in which buyers match with vertically differentiated sellers. The market is segmented into submarkets based on seller types. Such segmentation serves as a public signal that buyers use to direct their search. Given a segmentation, I characterize both the socially efficient and the equilibrium allocation of buyers across submarkets, and identify a Hosios-type condition under which the equilibrium allocation is efficient. I then analyze the design of surplus-maximizing segmentations, showing that the nature of search externalities determines when the constrained-efficient segmentation fully separates seller types or pools them into at most a binary partition.

Date: 2025-01, Revised 2025-09
New Economics Papers: this item is included in nep-com, nep-des and nep-mic
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