SEARCH MARKET EQUILIBRIUM, BILATERAL HETEROGENEITY, AND REPEAT PURCHASES

We develop a general model of search market equilibrium with heterogeneous buyers and sellers. This framework unifies previous models with one-sided heterogeneity and clarifies many of their special properties. It easily accounts for price dispersion, active search, and the matching of buyer and seller types. It also extends to repeat purchases, once we embed it into a dynamic game with incomplete information. We formalize the inferences and strategies underlying equilibria where firms charge constant prices and customers patronize them loyally. We establish a general correspondence between such equilibria and single purchase markets. Journal of Economic Literature Classification Numbers: D83, L13. © 1993 Academic Press, Inc.