Sequentially Mixed Search and Equilibrium Price Dispersion
46 Pages Posted: 23 Nov 2018
Date Written: October 8, 2018
Many markets feature sequentially mixed search (SMS), which has directed search in the first stage followed by noisy matching with multiple offers in the second stage. I construct a simple model of SMS, establish existence of a unique equilibrium, analyze how the two stages of SMS interact to affect quantities and price dispersion, and conduct comparative statics with respect to the meeting efficiency and the economic condition. By extending the model to endogenize search effort, I show that the equilibrium is not constrained socially efficient. Policies are introduced to restore efficiency and to manage aggregate demand and supply.
Keywords: Sequentially mixed search, Price dispersion, Efficiency
JEL Classification: D40, D60, D83
Suggested Citation: Suggested Citation