Sellers' Implicit Collusion in Directed Search Markets

Abstract

This paper studies a competing-mechanism game for directed search markets in which multiple sellers simultaneously offer selling mechanisms to multiple buyers in order to compete for trading opportunities and profits. Buyers approach any particular seller via directed search, but there can be mis-coordination among buyers in the sense that they choose all the sellers offering the same mechanism with equal probability. A seller's mechanism can be sufficiently general to make his trading price contingent on participating buyers' messages, which may reflect changes in trading prices somewhere else. This allows sellers to sustain implicit collusion. This paper focuses on symmetric equilibria in which sellers offer the same mechanism that induces buyers' expost truth telling on market information. It provides the characterization of all symmetric ex-post truth telling equilibrium allocations and comparative statics regarding the range of equilibrium prices and profits. In a large market, the probability that sellers can sell their products at collusive prices depends on the ratio of buyers to sellers.