Seminar on "Search with Private Information: Sorting, Price Formation, and Convergence to Perfect Competition"
||Dr. XU Yujing
Faculty of Business and Economics
The University of Hong Kong
||27 September 2018 (Thursday)
||10:30am – 12:00nn
||WYL314, 3/F, Dorothy Y. L. Wong Building
We consider a dynamic market where heterogeneous buyers and sellers are randomly paired in each period, with match values being supermodular in both types and production costs depending on seller's type. Within each match, the seller type becomes observable while the buyer type remains private, and the seller makes a take-it-or-leave-it offer. We first highlight sellers' trade-off between a higher price and a higher selling probability under extremely large search frictions when agents completely disregard future payoffs. Log-supermodularity of the gains from trade, which equals the match value minus the production cost, is necessary and sufficient for positive assortative matching (PAM). This means that when the gains from trade is decreasing (increasing) in seller's type, supermodularity is not necessary (not sufficient) for PAM. When search frictions vanish, the condition for PAM returns to supermodularity, as sellers' incentive to secure trade in any given period becomes inconsequential. We then demonstrate that the steady state equilibrium exists and converges to the competitive limit as search frictions vanish.
Dr. Yujing XU received her M.A. and Ph.D. in Economics from the University of California, Los Angeles. She also holds a B.A. in Economics and B.S. in Applied Mathematics from Peking University. She joined the School of Economics and Finance at The University of Hong Kong in 2014 as an Assistant Professor. Yujing’s main research areas are economic theory, search theory and industrial organization, and she is interested in applied theory in general.