Dynamic Pricing with Search Frictions
41 Pages Posted: 27 Jan 2018
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Dynamic Pricing with Search Frictions
Date Written: December 05, 2017
Abstract
We study markets for perishable goods with search frictions. Sellers have a single unit of a good and post prices in every period. Buyers engage in costly search to observe prices and match values. In equilibrium trade starts endogenously and the volume of trade increases over time. Under mild conditions, prices decrease at increasing rates over time. We derive the gains from trade in equilibrium as well as their distribution, and fully characterize the equilibrium for a class of demand functions in markets with evenly matched buyers and sellers. We finally discuss implications for market design, including cancellation policies.
Keywords: consumer search, dynamic pricing, sharing economy
JEL Classification: D110, D830, L130
Suggested Citation: Suggested Citation