Working Paper: NBER ID: w22038
Authors: Dominic Coey; Bradley Larsen; Brennan Platt
Abstract: 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 a good reveal consumers' reservation prices. We find robust evidence supporting the theory, and demonstrate that ignoring buyer deadlines can distort estimates of market welfare, consumer demand, and underlying causes of market shifts.
Keywords: Consumer Search; Deadlines; Bidding Dynamics; Online Retail
JEL Codes: C73; D44; D83
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Ignoring buyer deadlines (G14) | Distorted estimates of market welfare and consumer demand (D11) |
| Consumers' reservation prices increase as the deadline approaches (D11) | Shift from discount sellers to full-price sellers (D49) |
| Deadlines (C41) | Price dispersion among identical goods (D49) |