Optimal Agency Relationships in Search Markets

Authors:
Christopher Curran and Joel Schrag
Working Paper:
234

We compare a seller's agency regime, in which agents give sellers information about buyers' willingness to pay, with a buyer's agency regime, in which agents keep buyers' information confidential. Aggregate gains from trade can be higher under either agency regime. Aggregate gains from trade are higher under buyer's agency if traders expect to spend less time in the market under buyer's agency. Equivalently, aggregate gains from trade are higher under seller's agency only if traders expect to spend less time in the market under seller's agency. We use our theoretical results to interpret empirical findings on the effects of different agency regimes.