Informational Cycles in Search Markets

Eeva Mauring

Vienna Economics Papers from University of Vienna, Department of Economics

Abstract: I study a sequential search model where buyers face an unknown distribution of offers and learn about the distribution from other buyers' actions. Each buyer observes whether a randomly chosen buyer traded in the previous period. I show that a cyclical equilibrium exists where the informational content of observing a trade fluctuates: a trade is good news about the distribution in every other period and bad news in the remaining periods. This leads to fluctuations in the volume and probability of trading. They fluctuate more if the unknown distribution is bad rather than good. A steady-state equilibrium where buyers are more likely to continue searching than in the cyclical equilibrium is less efficient than the cyclical equilibrium. A market that starts at date one converges to the cyclical equilibrium for some parameter values.

JEL-codes: D83 E32 L15 (search for similar items in EconPapers)
Date: 2017-10
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Related works:
Journal Article: Informational Cycles in Search Markets (2020)
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