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The Limits of Search Algorithms

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  • Xiaoyu Chen
  • Jingmin Huang
  • Yibo Lian

Abstract

A platform commits to a search algorithm that maps prices to search order. Given this algorithm, sellers set prices, and consumers engage in sequential search. This framework generalizes the ordered search literature. We introduce a special class of search algorithms, termed ''contracts,'' show that they implement all possible equilibrium prices and then characterize the set of implementable prices. Within this set, we identify the seller-optimal contract, whose first-best outcome remains an open problem for a multiproduct seller. Our findings highlight the conditions under which the platform favors price dispersion or price symmetry. Furthermore, we characterize the consumer-optimal and socially optimal contracts, which exert opposing forces to the seller-optimal contract: while the seller-optimal contract promotes higher prices, the consumer-optimal and socially optimal contracts favor lower prices.

Suggested Citation

  • Xiaoyu Chen & Jingmin Huang & Yibo Lian, 2025. "The Limits of Search Algorithms," Papers 2503.03497, arXiv.org.
    • Handle: RePEc:arx:papers:2503.03497
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