DP16884 Competitive Search and the Social Value of Public Information
In the presence of trading frictions and imperfect information about market conditions, the quality of the available information matters for optimal prices. Prices, in turn, matter for the likelihood of trading. We model this interdependency in a competitive search equilibrium with aggregate risk and study the social value of better public information. While perfect information is always optimal, marginal effects of information can be positive, negative or neutral for trade. Equilibria featuring inefficient price dispersion can arise if some sellers choose a price that implies not selling the good when the demand is low. The salient features of the matching function matter for how information affects the equilibrium. We also find that entry is in general inefficient.
