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Search Costs and Equilibrium Price Dispersion in Auctions

Joseph U. Podwol, U.S. Department of Justice
Henry S. Schneider, Cornell University
Matthew R. Backus, Cornell University

Abstract

A leading explanation for price dispersion in posted-price markets is search costs. We incorporate this insight into a model of competing second-price auctions similar to eBay. By doing so, we extend the narrow literature on competing auctions to capture price dispersion, and grow the already large literature on price dispersion to include auctions. We provide evidence on search costs and price dispersion using data collected from eBay, identifying search costs by exploiting a discontinuity in the visibility of auctions due to eBay’s search tool.

Suggested Citation

Joseph U. Podwol, Henry S. Schneider, and Matthew R. Backus. "Search Costs and Equilibrium Price Dispersion in Auctions" European Economic Review (2014).
Available at: http://works.bepress.com/henry_schneider/8