Costly Search with Adverse Selection: Solicitation Curse vs. Acceleration Blessing with Kyungmin (Teddy) KimRAND Journal of Economics, Vol. 48, No. 2 (May 2017), pp. 1756-2171
We consider a dynamic trading model in which a seller, with private information about the quality of her good, can increase the frequency of strategic price quotes through more intensive search (or advertising). A low-quality seller benefits more from trade, and therefore searches more intensively than a high-quality seller. We identify two opposing effects of endogenous search intensity on buyers' inferences. On the one hand, a low-quality seller is more likely to find a buyer than a high-quality seller, and thus a seller's contact carries negative information (solicitation curse). On the other hand, a low-quality seller leaves the market even faster than a high-quality seller because she is willing to accept lower offers, and thus a seller's availability becomes a stronger indicator of high quality (acceleration blessing).  We study how these two effects manifest themselves and interact with each other in both stationary and non-stationary environments. In the stationary environment, the two effects exactly offset each other for any strategy profile, and reducing search costs is weakly beneficial to the seller. In the non-stationary environment, the relative strengths of the two effects vary over time, generating a unique form of trading dynamics, and reducing search costs can be detrimental to the seller.

Working Paper:
Consumers often acquire product information in order to make a purchase decision. I study a monopolistic pricing problem in which the consumer performs product research to determine whether or not to purchase the good. The consumer receives a signal of quality via a Brownian motion process with a type-dependent drift, which is akin to reading online reviews or quality reports to learn about the good's underlying quality. I fully characterize the consumer's optimal strategy; she buys the product when she is sufficiently optimistic about the quality and ceases to pay for the signal when she is sufficiently pessimistic. I examine the implications of this behavior for the seller's optimal pricing decision. I find that the seller prefers to encourage product research when quality is likely to be high, and prefers to discourage research when quality is likely to be low. I show that lowering search costs or increasing the quality of information can either raise or lower equilibrium price; if the seller wants to discourage search, price falls when search costs do, and if he wants to encourage search, it is more likely that price will rise as search costs fall. Intuitively, if the seller discourages search, then lower search costs result in more information rent for the consumer in the form of a lower price, but if the seller encourages search, he must keep incentives balanced. Therefore, when search costs fall, the seller raises the price to compensate. I also extend the model so that the seller chooses both price and the level quality dispersion and demonstrate that the optimal level of dispersion need not be extremal. The seller prefers either no dispersion and a low price to promote immediate sale or an intermediate level of dispersion and a high price to encourage product research.   

Work in Progress:
Optimal Wage-Tenure Contracts with Impatient Workers
I analyze an optimal wage-tenure contracting problem in which workers are relatively more impatient than firms and do on-the-job search. On the one hand, firms have an incentive to backload wages, to prevent other firms from poaching their employees. On the other hand, because firms are more patient, they have an incentive to front load wags. I show that in equilibrium, which incentive dominates will depend on how much more impatient the worker is relative to the rate at which firms and workers meet. I characterize the optimal wage-tenure contract when workers are risk-neutral. The firm finds it optimal to satisfy the impatience of the worker by offering higher wages sooner, but take the risk of the worker leaving to another firm, if the arrival rate of offers is sufficiently low. If the arrival rate is sufficiently high, it is more important for the firm to incentivize the worker to stay than to satisfy her impatience.