Friday, November 19, 2010
Posted by D. Daniel Sokol
Jan Eeckhout and Philipp Kircher (both UPenn - Econ) address Sorting versus screening: search frictions and competing mechanisms.
ABSTRACT: In a market where sellers compete by posting trading mechanisms, we allow for a general search technology and show that its features crucially affect the equilibrium mechanism. Price posting prevails when meetings are rival, i.e., when a meeting by one buyer reduces another buyer's meeting probability. Under price posting buyers reveal their type by sorting ex-ante. Only if the meeting technology is sufficiently non-rival, price posting is not an equilibrium. Multiple buyer types then visit the same sellers who screen ex-post through auctions.