A BEJM Topics article.

Abstract

We compare equilibrium allocations in directed search models where prices are determined alternatively by posting and by competing auctions, with the following results. With finite numbers of players, sellers' expected payoffs are higher when all sellers auction than when all sellers post. This difference is largest in the 2-by-2 case, where payoffs to sellers are 1/3 higher if they auction. The difference in the payoffs decreases rapidly with market size and vanishes in the limit "large" economy. When sellers can choose whether to post prices or auction in the 2-by-2- case, all combinations (auction-auction, post-post, and auction-post) can occur in equilibrium if sellers choose mechanism and price simultaneously. However, if sellers choose mechanism before price then the dominant strategy equilibrium has both sellers auctioning.

Submitted: April 4, 2001 · Accepted: June 18, 2001 · Published: July 10, 2001

Originally published in Topics in Macroeconomics.

Recommended Citation

Julien, Benoit; Kennes, John ; and King, Ian Paul (2001) "Auctions and Posted Prices in Directed Search Equilibrium," Topics in Macroeconomics: Vol. 1 : Iss. 1, Article 1.
Available at: http://www.bepress.com/bejm/topics/vol1/iss1/art1