Discounts and Deadlines in Consumer Search

We present a new equilibrium search model where consumers initially search among discount opportunities, but are willing to pay more as a deadline approaches, eventually turning to full-price sellers. The model predicts equilibrium price dispersion and rationalizes discount and full-price sellers coexisting without relying on ex ante heterogeneity. We apply the model to online retail sales via auctions and posted prices, where failed attempts to purchase reveal consumers' reservation prices. We find robust evidence supporting the theory. We quantify dynamic search frictions arising from deadlines and show how, with deadline-constrained buyers, seemingly neutral platform fee increases can cause large market shifts. (JEL D11, D44, D83, L81)

Asset-Level Risk and Return in Real Estate Investments

In stark contrast with liquid asset returns, commercial real estate idiosyncratic return means and variances do not scale with the holding period, even after accounting for all cash flow-relevant events. This puzzling phenomenon survives controlling for vintage effects, systematic risk heterogeneity, and a host of other explanations. To explain the findings, I derive an equilibrium search-based asset-pricing model that, when calibrated, provides an excellent fit to transactions data. A structural model of transaction risk seems crucial to understanding real estate price dynamics. These insights extend to other highly illiquid asset classes, such as private equity and residential real estate.

Equilibrium Price Dispersion with Search Regret Disutility

I examine an extension of the Burdett and Judd ([1983] . Equilibrium price dispersion. Econometrica, 51[4], 955–970) model whereby the consumers with positive search costs experience search regret disutility. First, I focus on the non-sequential search equilibrium in which the said consumers randomize between searching for one price and searching for two prices. When the disutility is significant (a) the spectrum of parameters for which this dispersed price equilibrium can be sustained widens significantly compared to the setting with no disutility; (b) this dispersed price equilibrium is unique and stable in contrast to the multiplicity of dispersed price equilibria of this type which arise in the original model; and (c) in the stable dispersed price equilibrium of this type the consumers with positive search costs respond to the possibility of search regret disutility by increasing their equilibrium search intensity. Second, I concentrate on the noisy sequential search equilibrium in which the reservation price is endogenous. When the search cost takes relatively high values, then compared to the setting with no disutility (a) the set of parameters for which this dispersed price equilibrium is supported may become significantly smaller; (b) the reservation price decreases; and (c) the consumers with positive search costs choose the same search intensity. JEL Classifications: D41, D83

Search Among Queues Under Quality Differentiation

Customers looking for service providers often face search frictions and have to trade off quality and availability. To understand customers’ search behavior when they are confronted with a large collection of vertically differentiated, congested service providers, we build a model in which arriving customers conduct a costly sequential search to resolve uncertainty about service providers’ quality and queue length and select one to join by optimal stopping rules. Customers search, in part, because of variations in waiting time across service providers, which, in turn, is determined by the search behavior of customers. Thus, an equilibrium emerges. We characterize customers’ equilibrium search/join behavior in a mean field model as the number of service providers grows large. We find that reducing either the search cost or customer arrival rate may increase the average waiting time in the system as customers substitute toward high-quality service providers. Moreover, with lower search costs, the improved quality obtained by customers may not make up for the prolonged wait, therefore degrading the average search reward and, more importantly, decreasing customer welfare; when customers search, their welfare can even be lower than if they are not allowed to search at all. This paper was accepted by Gad Allon, operations management.

An Equilibrium Model of the African HIV/AIDS Epidemic

Twelve percent of the Malawian population is HIV infected. Eighteen percent of sexual encounters are casual. A condom is used a third of the time. To analyze the Malawian epidemic, a choice‐theoretic general equilibrium search model is constructed. In the developed framework, people select between different sexual practices while knowing the inherent risk. The calibrated model is used to study several policy interventions, namely, ART, circumcision, better condoms, and the treatment of other STDs. The efficacy of public policy depends upon the induced behavioral changes and equilibrium effects. The framework complements the insights from epidemiological studies and small‐scale field experiments.