Commitment and Costly Signalling in Decentralized Markets

Derek Stacey

No 60, Working Papers from Toronto Metropolitan University, Department of Economics

Abstract: I propose a model of a decentralized market using a search framework with asymmetric information in which sellers are unable to commit to asking prices announced ex ante. Relaxing the commitment assumption prevents sellers from using price posting as a signalling device to direct buyers' search. Private information about the gains from trade and inefficient entry on the demand side then contribute to market illiquidity. Endogenous sorting among costly marketing platforms can facilitate the search process by segmenting the market to alleviate information frictions. Seemingly irrelevant but incentive compatible listing fees are implementable as long as the market is not already sufficiently active. The theoretical implications are qualitatively consistent with the empirical observations of real estate brokerage in housing markets: listing fees, platform differentiation, and endogenous sorting based on seller motivation.

Keywords: Search; Costly Signalling; Efficiency; Housing (search for similar items in EconPapers)
JEL-codes: C78 D40 D44 D83 R31 (search for similar items in EconPapers)
Pages: 49 pages
Date: 2014-12, Revised 2015-11
New Economics Papers: this item is included in nep-com, nep-dge and nep-mkt
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Related works:
Journal Article: COMMITMENT AND COSTLY SIGNALING IN DECENTRALIZED MARKETS (2016)
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Persistent link: https://EconPapers.repec.org/RePEc:rye:wpaper:wp060

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