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A Cluster and a Search Market CanCoexist

Author

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  • Juha Virrankoski

    (Aalto University)

Abstract

I examine a rational expectations model of buyers and capacity con-strained sellers, where traders can choose between a cluster and a searchmarket. Sellers choose a market and post a price, and then buyerschoose which market to visit. There is a pure strategy equilibriumwhere all agents are in the cluster. There are also two continua ofmixed strategy equilibria. In a low-price equilibrium the cluster fea-tures overdemand, and in the high-price equilibrium the cluster fea-tures oversupply. The result differs sharply from a model where de-mand is stochastic and realizes after sellers have made their choices.

Suggested Citation

  • Juha Virrankoski, 2019. "A Cluster and a Search Market CanCoexist," Discussion Papers 128, Aboa Centre for Economics.
    • Handle: RePEc:tkk:dpaper:dp128
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    File URL: http://ace-economics.fi/kuvat/dp128.pdf
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    matching; clustering;

    JEL classification:

    • C78 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Bargaining Theory; Matching Theory
    • D40 - Microeconomics - - Market Structure, Pricing, and Design - - - General
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms

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