Information and Prices with Capacity Constraints

Lester, Benjamin

doi:10.1257/aer.101.4.1591

Cited by 67 publications

(107 citation statements)

References 13 publications

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“…Increasing the buyer-seller ratio shows induces a large positive marginal impact on expected revenue, justifying an increase in advertising intensity. This positive correlation between equilibrium price and measure of informed buyers, those who receive ads, has also been shown by Lester (2011) but for finite markets only. 7 Here we find this effect but in a large market for relatively low buyer-seller ratio and the number of informed buyers is endogenous.…”

Section: Introductionsupporting

confidence: 64%

Informative Advertising in Directed Search

2012

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We consider a directed search environment where capacity constrained sellers reach uncoordinated buyers through costly advertising while buyers observed all prices probabilistically. We show that: (i) the equilibrium advertising intensity has an inverted U-shape in market tightness, (ii) the equilibrium advertising intensity is higher under an auction mechanism than under posted pricing, and (iii) the equilibrium price and measure of informed buyers may be positively correlated even in large markets.JEL Classification: E52, E63.

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Section: Introductionsupporting

confidence: 64%

Informative Advertising in Directed Search

2012

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“…Lester (2011) shows that increasing the fraction of informed buyers can increase or decrease prices, depending on parameters. This is contrary to conventional wisdom, and to sev- we are in a pure random or a pure directed search world, and both have no dispersion; when the fraction is between 0 and 1 there is price dispersion; and so it is obviously nonmonotone in information.…”

Section: Issues Applications and Extensionsmentioning

confidence: 99%

Directed Search: A Guided Tour

Wright

Kircher

Julien³

et al. 2017

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This essay surveys the literature on directed/competitive search, covering theory and applications in, e.g., labor, housing and monetary economics. These models share features with traditional search theory, yet differ in important ways. They share features with general equilibrium theory, but with explicit frictions. Equilibria are typically efficient, in part because markets price goods plus the time required to get them. The approach is tractable and arguably realistic. Results are presented for finite and large economies. Private information and sorting with heterogeneity are analyzed. Some evidence is discussed. While emphasizing issues and applications, we also provide several hard-to-find technical results.

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“…Following the argument in Lester (2011), it is easy to see that there are at most two submarkets in equilibrium. A profit-maximizing seller will either post (q l , d l ) to serve both informed and uninformed buyers, or post (q h , d h ) to serve only uninformed buyers.…”

mentioning

confidence: 96%

“…Here, we introduce some randomness in the search process following Lester (2011). The idea is to let some buyers be uninformed about the offer ex ante so that they may randomly visit different submarkets.…”

mentioning

confidence: 99%

The threat of counterfeiting in competitive search equilibrium

Shao

2014

Journal of Economic Dynamics and Control

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Recent studies in monetary theory show that if buyers can use lotteries to signal the quality of bank notes, counterfeiting does not occur in a pooling equilibrium. In this paper, I investigate the robustness of this non-existence result by considering an alternative trading mechanism. Specifically, a competitive search environment is employed in which sellers post offers and buyers direct their search based on those offers. In contrast to the previous studies, buyers' ability to signal is fully eliminated in this environment. However, I find that counterfeiting does not exist if the equilibrium concept proposed by Guerrieri et al. (2010) is used. This is a refinement scheme in which sellers' out-of-equilibrium beliefs about the likelihood of meeting with different types of buyers are restricted. Moreover, a threat of counterfeiting can result in the collapse of a monetary equilibrium. An extension of the model is provided which allows the threat of counterfeiting to materialize, in that some buyers cannot observe the offers, and therefore search randomly. Counterfeit notes are produced by those buyers who randomly search. JEL classification: D82, D83, E42 Bank classification: Bank notes RésuméLes récentes études en théorie monétaire ont montré que, si les indications des acheteurs sur la qualité des billets de banque sont obtenues au moyen de loteries, la contrefaçon n'existe pas en situation d'équilibre non séparateur. L'auteur fait appel ici à un autre mécanisme de négociation pour vérifier la robustesse de ce résultat. Il définit un cadre de prospection concurrentielle dans lequel les vendeurs affichent des offres qui aiguillent les acheteurs. Il est impossible à ces derniers de transmettre des signaux, hypothèse différente de celle retenue dans les travaux précédents. L'auteur conclut que, malgré cela, la contrefaçon n'existe pas en situation d'équilibre si l'équilibre est défini à la manière de Guerrieri et autres (2010), qui appliquent des restrictions aux croyances hors équilibre des vendeurs quant à la probabilité de rencontrer différents types d'acheteurs. L'étude fait en outre ressortir qu'une menace de contrefaçon peut entraîner l'effondrement de l'équilibre monétaire. L'auteur présente une extension du modèle dans laquelle cette menace peut se concrétiser du fait que certains acheteurs n'ont pas connaissance des offres et procèdent par conséquent à la prospection de manière aléatoire. Ce sont ces acheteurs qui peuvent produire de faux billets.

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Information and Prices with Capacity Constraints

Cited by 67 publications

References 13 publications

Informative Advertising in Directed Search

Informative Advertising in Directed Search

Directed Search: A Guided Tour

The threat of counterfeiting in competitive search equilibrium

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