Dynamic Directed Search

Gabriele Camera and Jaehong Kim

Working Papers from Chapman University, Economic Science Institute

Abstract: The directed search model (Peters, 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 pre-existing 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: 2015
New Economics Papers: this item is included in nep-dge, nep-gth, nep-mac and nep-mic
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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http://www.chapman.edu/research-and-institutions/e ... mera-Kim-ET-2015.pdf

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Journal Article: Dynamic directed search (2016)
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Persistent link: https://EconPapers.repec.org/RePEc:chu:wpaper:15-06

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