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  4. November 2020
  5. Informational Cycles in Search Markets

American Economic Journal:
Microeconomics

ISSN 1945-7669 (Print) | ISSN 1945-7685 (Online)

Informational Cycles in Search Markets

  • Eeva Mauring
American Economic Journal: Microeconomics
vol. 12, no. 4, November 2020
(pp. 170–92)
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Abstract

I 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.

Citation

Mauring, Eeva. 2020. "Informational Cycles in Search Markets." American Economic Journal: Microeconomics, 12 (4): 170–92. DOI: 10.1257/mic.20180129

Additional Materials

JEL Classification

  • D82 Asymmetric and Private Information; Mechanism Design
  • D83 Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
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