Should Buyers or Sellers Trade in a Frictional Market?

Shouyong Shi and Alain Delacroix

No 254, 2018 Meeting Papers from Society for Economic Dynamics

Abstract: To answer the question in the title, this paper characterizes the socially efficient organization of the market with search frictions. The efficient organization depends on the relative elasticity in the supply between the two sides of the market, the costs of participating in the market and organizing trade, and the (a)symmetry in matching. We also show that the social optimum can be implemented by a realistic market equilibrium where the organizers set up trading sites to direct the other side's search. The results provide a unified explanation for why trade has often been organized by sellers in the goods market, by buyers (firms) in the labor market, and by both sides in the asset market. The analysis also sheds light on how the efficient market organization can change with innovations such as e-commerce and just-in-time production.

Date: 2018
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Citations: View citations in EconPapers (11)

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