Costly search with adverse selection: solicitation curse versus acceleration blessing

Kyungmin Kim, Marilyn Pease

Research output: Contribution to journalArticlepeer-review

1 Scopus citations

Abstract

We analyze a dynamic trading model of adverse selection where a seller can increase the frequency of strategic price quotes. A low-quality seller benefits more from trade and, therefore, searches more intensively than a high-quality seller. This makes a seller's contact carry negative information but a seller's availability become a stronger indicator of high quality. In the stationary environment, the two effects exactly offset each other, and reducing search costs is weakly beneficial to the seller. In the nonstationary environment, the relative strengths of the two effects vary over time, and reducing search costs can be detrimental to the seller.

Original languageEnglish (US)
Pages (from-to)526-553
Number of pages28
JournalRAND Journal of Economics
Volume48
Issue number2
DOIs
StatePublished - Jun 1 2017

ASJC Scopus subject areas

  • Economics and Econometrics

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