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Abstract:
Competition for access to an underpriced good such as a free parking spot can eat up its entire surplus, eliminating the social value of the good. There is a discontinuity in social welfare between enough and not enough, with the minimum social welfare at slightly too small a parking lot because of the rent-seeking efforts of drivers. Full rent dissipation occurs only when drivers have identical preferences, but allowing for heterogeneous preferences does not alter the conclusion that the welfare losses from undercapacity and overcapacity are asymmetric and that parking lots should be overbuilt. Furthermore, when it is chosen optimally under uncertainty, the parking lot size will be well in excess of mean demand, and may even be chosen to accommodate all potential drivers. Uncertainty over the number of drivers, which is detrimental in the first-best, actually increases social welfare if the parking lot size is too small.

rent-seeking, all-pay auction, timing game, capacity size, queue.

Abstract:
Almost all of the literature on search markets is based on the assumption that search is random. However, in real life, consumer search is hardly ever random. This paper presents an ordered search model that, in contrast to random search models, yields intuitively appealing equilibria in which there is price dispersion; prices decline in the order of search; the equilibrium price distribution depends on the distribution of search costs; and consumers with lower search costs search longer and obtain better deals. The welfare implications and feasibility of different search technologies are discussed, and it is shown how a search order can arise endogenously in a positioning game played by firms.

Non-Random Search, Price Dispersion, Diamond Paradox, Positioning Game, Intermediary

Abstract:
We analyze daily mortgage rates posted by online lenders at the price comparison site, Microsurf. While cost shocks occurred almost daily in our sample, quoted mortgage rates are surprisingly rigid: Only 16 percent of the posted rates represent changes. However, firms that adjusted rates in response to cost shocks did so quite rapidly; about 98 percent of a cost shock was passed through within two days of the cost shock. Duration analysis reveals that the observed rigidity in rates systematically depends on market structure: Online mortgage rates are 30 to 40 percent more durable in concentrated markets than in markets where there are many competitors. We also find that rates posted online tend to exhibit downward stickiness; rate adjustments in response to cost increases are about twice the corresponding adjustments for cost decreases.

Mortgage rate, price adjustment, price rigidity, price dispersion

Abstract:
This paper compares equilibrium outcomes in search markets with and without referrals. Although it seems clear that consumers would benefit from honest referrals, it is not at all clear whether firms would unilaterally provide information about competing offers since such information could encourage a consumer to purchase the product elsewhere. In a model of a horizontally differentiated product and sequential consumer search, we show that valuable referrals can arise as a part of equilibrium: a firm will give referrals to consumers whose ideal product is sufficiently far from the firm's offering. The effect of referrals on the equilibrium prices is examined, and it is found that prices are higher in markets with referrals. Although consumers can be made worse off by the existence of referrals, referrals lead to a Pareto improvement as long as the search cost is not too low relative to product heterogeneity. The effects of referral fees and third-party referrals are examined, and policy implications are drawn.

horizontal referrals, consumer search, information, matching, broker commission

Abstract:
In many contests, players can influence their chances of winning through multiple activities or "arms." We develop a simple model of multi-armed contests and axiomatize its contest success function. We then analyze the outcomes of the multi-armed contest and the effects of allowing or restricting arms. Restricting an arm increases total effort directed to other arms if and only if restricting the arm balances the contest. Restricting an arm tends to reduce rent dissipation because it reduces the discriminatory power of the contest. But it also tends to increase rent dissipation if it balances the contest. Less rent is dissipated if an arm is restricted as long as no player is excessively stronger than the other with that arm. If players are sufficiently symmetric in an arm, both players are better off if that arm is restricted. Nevertheless, players cannot agree to restrict the arm in equilibrium if their costs of using the arm are sufficiently low.

Multi-Armed Contests, Axiomatization, Rent Dissipation, Discriminatory Power, Comparative Advantage, Pareto Improvement, Prisoners' Dilemma

Abstract:
A common feature of low-price guarantees is that they allow consumers to postpone bargain-hunting until after the purchase. This paper addresses a number of questions concerning the adoption pattern of price-matching and price-beating guarantees with post-purchase search and their impacts on market prices. It is shown that low-price guarantees are offered by low-cost firms, and are associated with relatively low prices. All firms weakly reduce their prices in the presence of low-price guarantees, and firms offering low-price guarantees usually have incentives to cut their prices. These results are in sharp contrast with the traditional view on these policies as collusive practices.

Price-Matching, Price-Beating, Consumer Search, Price Competition

Abstract:
Transaction costs are usually thought to be a major source of inefficiency because they do not allow efficient trades to take place. One might think that lowering transaction costs is always welfare-improving. This paper argues that, in contrast to conventional wisdom, it may be beneficial to increase transaction costs on one side of the market to balance them with the costs on the other side. In the model, transaction costs imposed on applicants serve as a screening device that substantially reduces evaluation costs. Even when application costs are totally wasteful, they arise endogenously in the equilibrium and can result in a welfare improvement.

Transaction costs, Application Fees, Matching, Two-Sided Markets, Search Costs

Abstract:
This paper provides evidence of the incidence and variety of low-price guarantees (promises to match or beat a rival's price) using data obtained from newspaper advertisements in thirty-seven metropolitan areas in the United States. In all, we have a total of five-hundred and fifteen low-price guarantees in our sample. We document their features, and we infer their motives and effects from these features. The evidence suggests that the majority of low-price guarantees are not consistent with their use as a facilitating device - because they tend to apply only to rival firms' advertised prices or they are associated with high hassle costs. The evidence also suggests that price-beating and price-matching guarantees differ significantly in their features. The former are associated with higher hassle costs, apply disproportionately more to rival firms' advertised prices, and are more likely to allow post-sale search than price-matching guarantees.