Empirical Studies of Search Markets

Paper Session

Saturday, Jan. 7, 2017 8:00 AM – 10:00 AM

Sheraton Grand Chicago, Ohio
Hosted By: Industrial Organization Society
  • Chair: Kenneth Hendricks, University of Wisconsin-Madison

Search Frictions and Market Power in Negotiated Price Markets

Jason Allen
,
Bank of Canada
Robert Clark
,
HEC Montreal
Jean-Francois Houde
,
Cornell University

Abstract

This paper develops and estimates a search and bargaining model designed to measure the welfare loss associated with frictions in oligopoly markets with negotiated prices. We use the model to quantify the consumer surplus loss induced by the presence of search frictions in the Canadian mortgage market, and evaluate the relative importance of market power, inefficient allocation, and direct search costs. Our results suggest that search frictions reduce consumer surplus by almost $20 per month per consumer, and that 17% of this reduction can be associated with discrimination, 30% with inefficient matching, and the remainder with the search cost.

Geography, Search Frictions and Trade Costs

Giulia Brancaccio
,
Princeton University
Myrto Kalouptsidi
,
Harvard University
Theodore Papageorgiou
,
McGill University

Abstract

International trade crucially relies on the efficient functioning of the global shipping industry. Freight rates (i.e. transport costs), cargo delivery times and even trade patterns themselves are determined by the spatial equilibrium of cargos and ships. The matching process between ships and cargos, however, is subject to search frictions, potentially leading to substantial social loss. In this paper, we measure these frictions and quantify their impact on global trade: We explore the global spatial allocation of ships and cargos, as well as the spatial and temporal distribution of freight costs. Moreover, we quantify the social loss due to search frictions. To do so, we construct a dynamic model of international cargo transportation where ships and cargos make market entry decisions (ports) and then meet under search frictions. We estimate the model using a unique dataset of detailed shipping spot contracts, as well as satellite data reporting ships' exact positions, speed, and level of draft.

Spatial Equilibrium, Search Frictions, and Efficient Regulation in the Taxi Industry

Nicholas Buchholz
,
Princeton University

Abstract

This paper analyzes the dynamic spatial equilibrium of taxicabs and shows how common taxi regulations lead to substantial inefficiencies. Taxis compete for passengers by driving to different locations around the city. Search costs ensure that optimal search behavior will still result in equilibrium frictions in the form of waiting times and spatial mismatch. Medallion limit regulations and fixed fare structures exacerbate these frictions by preventing markets from clearing on prices, leaving empty taxis in some areas, and excess demand in other areas. To analyze the role of regulation on frictions and efficiency, I pose a dynamic model of search and matching between taxis and passengers under regulation. Using a comprehensive dataset of New York City yellow medallion taxis, I use this model to compute the equilibrium spatial distribution of vacant taxis and estimate intraday demand. My estimates show that search frictions reduce welfare by $422M per year, or 62%. Counterfactual analysis reveals that existing regulations attain only 11% of the efficiency implied by a social planner’s solution, while the adoption of optimized two-part tariff pricing would lead to 89% efficiency, or a welfare gain on the order of $2.1B per year. The addition of directed matching technology to an optimized regime would increase welfare even further, by approximately $2.4B per year.

Intermediation and Competition in Search Markets: An Empirical Case Study

Tobias Salz
,
Columbia University

Abstract

In many decentralized markets buyers rely on intermediaries to find sellers. This paper argues that intermediaries can affect buyer welfare both directly by reducing expenses of buyers with high search cost but also indirectly through a search externality that affects the prices paid by those buyers that do not use intermediaries. To investigate these two distinct effects this project uses data from the New York City trade-waste market in which all businesses in the city contract individually with private waste carters to arrange for their waste disposal. Search in this market is costly for buyers because of the large number of sellers and the idiosyncratic nature of the contractual arrangements. Buyers can either search and haggle by themselves or through a waste-broker. Combining elements from the empirical search and procurement-auction literature, I construct and estimate a model for such a decentralized market setting. Results from the model show that buyers both in the broker market and in the search market benefit significantly from the activity of intermediaries. Intermediaries also improve overall welfare by reducing the cost of price discovery and the mis-allocation of sales to higher cost sellers.
Discussant(s)
Marc Rysman
,
Boston University
Kenneth Hendricks
,
University of Wisconsin-Madison
Fanyin Zheng
,
Columbia University
Alan Sorensen
,
University of Wisconsin-Madison
JEL Classifications
  • L1 - Market Structure, Firm Strategy, and Market Performance
  • L2 - Firm Objectives, Organization, and Behavior