A Cluster and a Search Market CanCoexist

Juha Virrankoski
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Juha Virrankoski: Aalto University

No 128, Discussion Papers from Aboa Centre for Economics

Abstract: I examine a rational expectations model of buyers and capacity con-strained sellers, where traders can choose between a cluster and a searchmarket. Sellers choose a market and post a price, and then buyerschoose which market to visit. There is a pure strategy equilibriumwhere all agents are in the cluster. There are also two continua ofmixed strategy equilibria. In a low-price equilibrium the cluster fea-tures overdemand, and in the high-price equilibrium the cluster fea-tures oversupply. The result differs sharply from a model where de-mand is stochastic and realizes after sellers have made their choices.

Keywords: matching; clustering (search for similar items in EconPapers)
JEL-codes: C78 D40 L11 (search for similar items in EconPapers)
Pages: 21
Date: 2019-10
New Economics Papers: this item is included in nep-ore
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