Template-Type: ReDIF-Paper 1.0
Author-Name: Derek G. Stacey
Author-X-Name-First: Derek
Author-X-Name-Last: Stacey
Author-Email: dstacey@economics.ryerson.ca
Author-Workplace-Name: Department of Economics, Ryerson University, Toronto, Canada
Title: Commitment and Costly Signalling in Decentralized Markets
Abstract: I propose a model of a decentralized market using a search framework 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 signalling 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 as long as the market is not already sufficiently active. The theoretical implications are qualitatively consistent with the empirical observations of real estate brokerage in housing markets: listing fees, platform differentiation, and endogenous sorting based on seller motivation.
Classification-JEL: C78; D40; D44; D83; R31
Keywords: Search, Costly Signalling, Efficiency, Housing
Length: 49 pages
Creation-Date: 2014-12
Revision-Date: 2015-11
Number: 060
File-URL: http://economics.ryerson.ca/workingpapers/wp060.pdf
File-Format: Application/pdf
Handle: RePEc:rye:wpaper:wp060