COMMITMENT AND COSTLY SIGNALING IN DECENTRALIZED MARKETS |
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| Authors: | Derek Stacey |
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| Affiliation: | Ryerson University, CanadaThis article is based on a chapter of my 2012 doctoral dissertation at Queen's University. I thank my advisors, Allen Head and Huw Lloyd‐Ellis, for their help and support. The editor, Guido Menzio, and two anonymous referees provided suggestions that substantially improved the article. Valuable comments were also received from conference/seminar participants at various institutions. The article was previously circulated under the title “Information, Commitment, and Separation in Illiquid Housing Markets.” All errors are my own. |
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| Abstract: | I propose a search model of a decentralized market with asymmetric information in which sellers are unable to commit to asking prices announced ex ante. Relaxing the commitment assumption prevents sellers from using price posting as a signaling device to direct buyers' search. Private information about the gains from trade and inefficient entry on the demand side then contribute to market illiquidity. Endogenous sorting among costly marketing platforms can facilitate the search process by segmenting the market to alleviate information frictions. Seemingly irrelevant but incentive compatible listing fees are implementable provided that the market is not already sufficiently active. |
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