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Should Buyers or Sellers Organize Trade in a Frictional Market?

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  • Shouyong Shi
  • Alain Delacroix

Abstract

To answer the question in the title, this article characterizes the socially efficient organization of the market with search frictions. The efficient organization depends on the relative elasticity in the supply between the two sides of the market, the costs of participating in the market and organizing trade, and the (a)symmetry in matching. We also show that the social optimum can be implemented by a realistic market equilibrium where the organizers set up trading sites to direct the other side’s search. The results provide a unified explanation for why trade has often been organized by sellers in the goods market, by buyers (firms) in the labor market, and by both sides in the asset market. The analysis also sheds light on how the efficient market organization can change with innovations such as e-commerce and just-in-time production.

Suggested Citation

  • Shouyong Shi & Alain Delacroix, 2018. "Should Buyers or Sellers Organize Trade in a Frictional Market?," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 133(4), pages 2171-2214.
    • Handle: RePEc:oup:qjecon:v:133:y:2018:i:4:p:2171-2214.
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    File URL: http://hdl.handle.net/10.1093/qje/qjy009
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    Citations

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    Cited by:

    1. Shouyong Shi, 2019. "Sequentially Mixed Search and Equilibrium Price Dispersion," 2019 Meeting Papers 322, Society for Economic Dynamics.
    2. Yujing Xu, 2022. "Unobservable investments, trade efficiency and search frictions," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 55(2), pages 764-799, May.
    3. Mangin, Sephorah & Julien, Benoît, 2021. "Efficiency in search and matching models: A generalized Hosios condition," Journal of Economic Theory, Elsevier, vol. 193(C).
    4. Shi, Shouyong, 2023. "Sequentially mixed search and equilibrium price dispersion," Journal of Economic Theory, Elsevier, vol. 213(C).
    5. Derek Stacey, 2019. "Posted Prices, Search and Bargaining," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 33, pages 85-104, July.
    6. Wright, Randall & Xiao, Sylvia Xiaolin & Zhu, Yu, 2018. "Frictional capital reallocation I: Ex ante heterogeneity," Journal of Economic Dynamics and Control, Elsevier, vol. 89(C), pages 100-116.
    7. Michelangelo Rossi, 2019. "How Does Competition Affect Reputation Concerns? Theory and Evidence from Airbnb," CESifo Working Paper Series 7972, CESifo.
    8. Kennes, John & le Maire, Daniel & Roelsgaard, Sebastian T., 2020. "Equivalence of canonical matching models," Games and Economic Behavior, Elsevier, vol. 124(C), pages 169-182.
    9. Yujing Xu, 2022. "Unobservable investments, trade efficiency and search frictions," Post-Print hal-03848827, HAL.
    10. Kim, Jinhwan & Valentine, Kristen, 2023. "Public firm disclosures and the market for innovation," Journal of Accounting and Economics, Elsevier, vol. 76(1).
    11. Severinov, Sergei & Virag, Gabor, 2024. "Who wants to be an auctioneer?," Journal of Economic Theory, Elsevier, vol. 217(C).
    12. Kim, Jinhwan & Olbert, Marcel, 2022. "How does private firm disclosure affect demand for public firm equity? Evidence from the global equity market," Journal of Accounting and Economics, Elsevier, vol. 74(2).

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