Competitive Search with Ex-post Opportunism

Pedro Gomis-Porqueras, Benoit Julien and Liang Wang

No 201623, Working Papers from University of Hawaii at Manoa, Department of Economics

Abstract: We consider a frictional market where an element of the terms of trade (price or quantity) is posted ex-ante (before the matching process) while the other is determined ex-post. By doing so, sellers can then exploit their local monopoly power by adjusting prices or quantities once the local demand is realized. We find that when sellers can adjust quantities ex-post, there exists a unique symmetric equilibrium where an increase in the buyer-seller ratio leads to higher quantities and prices. When buyers instead can choose quantity ex-post, higher buyer-seller ratio leads to higher price but lower quantity. These equilibrium allocations are generically not constrained efficient, in terms of both intensive and extensive margins. When sellers post ex-ante quantities and adjust prices ex-post, a symmetric equilibrium exists where buyers obtain no surplus. The equilibrium allocation is also constrained inefficient. If buyers choose prices ex-post, there is no equilibrium when entry is costly. This paper highlights how sellers ability to commit ex-ante to certain elements of the terms of trade is crucial in generating constrained efficient allocations.

Keywords: Competitive Search; Price Posting; Quantity Posting (search for similar items in EconPapers)
JEL-codes: D40 L10 (search for similar items in EconPapers)
Date: 2016-11
New Economics Papers: this item is included in nep-com and nep-mic
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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http://www.economics.hawaii.edu/research/workingpapers/WP_16-23R.pdf First version, 2016 03 (application/pdf)

Related works:
Journal Article: Competitive Search with Ex-post Opportunism (2018)
Working Paper: Competitive Search with Ex-post Opportunism (2016)
Working Paper: Competitive Search with Ex-post Opportunism (2016)
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