Get 20M+ Full-Text Papers For Less Than $1.50/day. Start a 14-Day Trial for You or Your Team.

Learn More →

Informational Cycles in Search Markets†

Informational Cycles in Search Markets† AbstractI show that market participants’ equilibrium beliefs can create fluctuations in the volume of trading, even in a stationary environment. I study a sequential search model where buyers face an unknown distribution of offers. Each buyer learns about the distribution by observing whether a randomly chosen buyer traded yesterday. A cyclical equilibrium exists where the informational content of observing a trade fluctuates, which leads to fluctuations in the volume of trading. The cyclical equilibrium is more efficient than steady-state equilibria. The efficiency result holds also if buyers get a signal about past transaction prices or past trading volumes. (JEL D82, D83) http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png American Economic Journal Microeconomics American Economic Association

Informational Cycles in Search Markets†

Download PDF
23 pages

Loading next page...
 
/lp/american-economic-association/informational-cycles-in-search-markets-M9hW1GadjS
Publisher
American Economic Association
Copyright
Copyright © 2020 © American Economic Association
ISSN
1945-7685
DOI
10.1257/mic.20180129
Publisher site
See Article on Publisher Site

Abstract

AbstractI show that market participants’ equilibrium beliefs can create fluctuations in the volume of trading, even in a stationary environment. I study a sequential search model where buyers face an unknown distribution of offers. Each buyer learns about the distribution by observing whether a randomly chosen buyer traded yesterday. A cyclical equilibrium exists where the informational content of observing a trade fluctuates, which leads to fluctuations in the volume of trading. The cyclical equilibrium is more efficient than steady-state equilibria. The efficiency result holds also if buyers get a signal about past transaction prices or past trading volumes. (JEL D82, D83)

Journal

American Economic Journal Microeconomics – American Economic Association

Published: Nov 1, 2020

References