Document Type

Dissertation

Date of Degree

Spring 2017

Degree Name

PhD (Doctor of Philosophy)

Degree In

Economics

First Advisor

Kyungmin Kim

Abstract

This dissertation contributes to the understanding of dynamic games in frictional markets. Specifically, it focuses on how information and search frictions influence outcomes in areas such as housing, over-the-counter markets, and online sales. I investigate how agents confront these frictions through learning, searching, and bargaining strategies that affect price formation and the allocation of resources.

In Chapter 1, we analyze a dynamic trading model of adverse selection where a seller can increase the frequency of strategic price quotes. A low-quality seller benefits more from trade and, therefore, searches more intensively than a high-quality seller. This makes a seller's contact carry negative information but a seller's availability become a stronger indicator of high quality. In the stationary environment, the two effects exactly offset each other, and reducing search costs is weakly beneficial to the seller. In the non-stationary environment, the relative strengths of the two effects vary over time, and reducing search costs can be detrimental to the seller.

In Chapter 2, I study a monopolistic pricing problem in which the consumer performs product research to determine whether or not to purchase the good. The consumer receives a signal of quality via a Brownian motion process with a type-dependent drift. I fully characterize the consumer's optimal strategy; she buys the product when she is sufficiently optimistic about the quality and ceases to pay for the signal when she is sufficiently pessimistic. I examine the implications of this behavior for the seller's optimal pricing decision. I find that the seller prefers to encourage product research when quality is likely to be high and prefers to discourage research when quality is likely to be low. I show that a decrease in search costs or an increase in the quality of information can either raise or lower equilibrium price. I also extend the model so that the seller chooses both price and the level of quality dispersion and demonstrate that the optimal level of dispersion need not be extremal.

Pages

ix, 119 pages

Bibliography

Includes bibliographical references (pages 115-119).

Copyright

Copyright © 2017 Marilyn Arlene Pease

Included in

Economics Commons

Share

COinS