Antitrust & Competition Policy Blog

Editor: D. Daniel Sokol
University of Florida
Levin College of Law

Friday, June 8, 2018

Dynamic Pricing with Search Frictions

Daniel Garcia studies Dynamic Pricing with Search Frictions.

ABSTRACT: We study markets for perishable goods with search frictions. Sellers have a single unit of a good and post prices in every period. Buyers engage in costly search to observe prices and match values. In equilibrium trade starts endogenously and the volume of trade increases over time. Under mild conditions, prices decrease at increasing rates over time. We derive the gains from trade in equilibrium as well as their distribution, and fully characterize the equilibrium for a class of demand functions in markets with evenly matched buyers and sellers. We finally discuss implications for market design, including cancellation policies.

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