Dynamic pricing with search frictions

Publications: Working paper


This paper studies dynamic pricing in markets with search frictions. Sellers have a single unit of a good and post prices in every trading period. Buyers have to incur a search cost to match with a new seller and upon matching they observe the price and the realization of some idiosyncratic match value. There is no discounting but trade ends at an exogenously given deadline. We show that equilibrium involves trading in finitely many trading periods and the volume of trade increases over time. Under mild conditions on the buyer-to-seller ratio and the distribution of valuations, prices decrease at increasing rates as the deadline approaches. We derive the gains from trade in equilibrium and their distribution between buyers and sellers. For the case in which the measures of buyers and sellers coincide, we provide a full characterization of the (unique) equilibrium for a class of distribution functions. We finally discuss implications for market design, including the use of platform fees and cancellation policies.
Original languageEnglish
Number of pages49
Publication statusPublished - May 2017

Publication series

SeriesWorking paper / The Vienna Institute for International Economic Studies (WIIW)

Austrian Fields of Science 2012

  • 502021 Microeconomics

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