Value of Communication and Social Media: An Equilibrium Theory of Messaging

Many papers use numerical information to estimate the price of a property even if improvements in information technology enable sellers to convey more information, in an increasing variety of formats. In our model, each seller sends a message and buyers search for a good match in terms of hidden differentiators. Since the meaning of a message is determined endogenously, multiple steady state equilibria exist. A maximal equilibrium displays assortative matching and its messaging strategies maximize the flow of surplus value. We show that it exists if the matching rate is high enough. This analysis reveals differences associated with newer media. For example, video can display information in such detail that a buyer may not need to inspect the house. The real time interactivity of social media also makes better messaging possible, if not necessarily consistent with an equilibrium. The goal of many social media messages is to “go viral” and that goal requires the participation of influencers, whose motives need to be considered more carefully. We offer a number of empirical predictions, conjectures and interesting special cases. We show that if the set of possible messages is a continuum then perfect messages are possible and selling prices would adapt in a way that minimizes time on market. In a maximal equilibrium, the messaging strategy used by a given type of seller need not vary across segments if the differences between segments are observable. Since so many people think that many property descriptions are colorful exaggerations, our equilibrium model provides a context for discussing whether a message misleads.