"Transparency and Search Markets"

Savelle, Daniel, Economics - Graduate School of Arts and Sciences, University of Virginia
Anderson, Simon, AS-Economics, University of Virginia
Engers, Maxim, AS-Economics, University of Virginia
Bethune, Zachary, AS-Economics, University of Virginia

In search markets where the choices of firms (such as prices) may or may not be observed by consumers prior to search, the set of classic discrete-choice models and the set of ordered-search models generate the same set of equilibrium demand structures. This set equality extends to the supply side of these models if consumers know all prices prior to search (full transparency). However, a firm's incentive to raise prices is increasing in the firm's relative opacity to consumers. In search markets with strategic complementarities, if any firm faces increased opacity, all equilibrium prices increase. Moreover, if an ordered-search market is incorrectly modeled with the equivalent classic discrete-choice model, empirical estimates of firm profit margins and theoretical predictions of market prices are at the lower bound corresponding to full transparency. For data sets that include information about aggregate (or individual) search and selection, I outline an identification strategy that can be used to partially identify the underlying supply-side parameters of the search market without making assumptions about the opacity of the market.

PHD (Doctor of Philosophy)
Ordered Search, Discrete Choice, Opacity
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