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Costly Search with Adverse Selection: Solicitation Curse vs. Accelerating Blessing

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Listed:
  • Marilyn Pease

    (University of Iowa)

  • Kyungmin Kim

    (University of Iowa)

Abstract

We study the effects of endogenizing search intensity in sequential search models of trading under adverse selection. Ceteris paribus, the low-type seller obtains more surplus from search and, therefore, searches more intensively than the high-type seller. This has two ramifications for trade. On the one hand, a seller who successfully finds a buyer is more likely to be the low type (solicitation curse). On the other hand, since the low-type seller leaves the market even faster than the high-type seller, a seller who is available is more likely to be the high type (accelerating blessing). We explore the interaction of these two effects in both stationary and non-stationary sequential search environments. In the stationary case, the two effects are balanced, while in the non-stationary case, the relative strengths of the two effects vary over time. We show that reducing search costs can be detrimental to the seller.

Suggested Citation

  • Marilyn Pease & Kyungmin Kim, 2014. "Costly Search with Adverse Selection: Solicitation Curse vs. Accelerating Blessing," 2014 Meeting Papers 816, Society for Economic Dynamics.
    • Handle: RePEc:red:sed014:816
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    References listed on IDEAS

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