Random vs. Directed Search for Scarce Resources

50 Pages Posted: 20 Dec 2018 Last revised: 16 Aug 2022

Date Written: May 14, 2019


This paper studies how ex-ante information affects consumer welfare in a search market where buyers search and match to sellers of a vertically differentiated product. In a random search market, a buyer gets no informative signal about the quality of a seller's product prior to matching, whereas in a directed search market, a buyer observes a perfectly informative signal. I derive the unique equilibrium outcome in each type of market and show that consumers are worse off in a directed search market when sellers are scarce and prices are bilaterally ex-post efficient.

Keywords: random search, directed search, consumer search, market segmentation

JEL Classification: C78, D62, D83

Suggested Citation

Mekonnen, Teddy, Random vs. Directed Search for Scarce Resources (May 14, 2019). Available at SSRN: https://ssrn.com/abstract=3275771 or http://dx.doi.org/10.2139/ssrn.3275771

Teddy Mekonnen (Contact Author)

Brown University ( email )

64 Waterman St
Providence, RI 02912-9029
United States

HOME PAGE: http://sites.google.com/view/teddymekonnen/

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