Observational Learning and Information Disclosure in Search Markets

47 Pages Posted: 29 Jun 2021 Last revised: 12 Oct 2021

See all articles by Ziying Fan

Ziying Fan

Shanghai University of Finance and Economics - School of Public Economics & Administration

Xi Weng

Peking University

Li‐An Zhou

Peking University - Guanghua School of Management

Yiyi Zhou

Stony Brook University

Date Written: October 6, 2021

Abstract

This paper studies the role of observational learning in search markets where buyers do not take the list price as a take-it-or-leave-it offer. Using a unique data from the Beijing housing market, we estimate a structural model in which buyers infer a seller’s reservation value from the home’s list price, time-on-market, and records of in-person home viewings by prior prospective buyers, after which they decide whether to view the home and how much to offer. We use the estimated model to quantify the welfare impact of different information disclosure rules. We find that buyer surplus is reduced, and seller surplus is increased on average if time-on-market information is disclosed. However, disclosing home-viewing information in addition to time-on-market information affects individual homes differently. We find that due to the disclosure of this additional information, buyers are slightly better off while sellers are slightly worse off on average.

Keywords: Observational Learning, Information Disclosure, Search Markets, Housing Search

JEL Classification: D12, D83, L51, L86, R21

Suggested Citation

Fan, Ziying and Weng, Xi and Zhou, Li‐An and Zhou, Yiyi, Observational Learning and Information Disclosure in Search Markets (October 6, 2021). Available at SSRN: https://ssrn.com/abstract=3869157 or http://dx.doi.org/10.2139/ssrn.3869157

Ziying Fan

Shanghai University of Finance and Economics - School of Public Economics & Administration ( email )

Shanghai, 200433
China

Xi Weng

Peking University ( email )

Beijing, 100871
China

Li‐An Zhou

Peking University - Guanghua School of Management

Peking University
Beijing, Beijing 100871
China

Yiyi Zhou (Contact Author)

Stony Brook University ( email )

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