Auctions and Posted Prices in Directed Search Equilibrium

We compare equilibrium allocations in directed search models where prices are determinedalternatively by posting and by competing auctions, with the following results. With finite numbersof players, sellers’ expected payoffs are higher when all sellers auction than when all sellers post.This difference is largest in the 2-by-2 case, where payoffs to sellers are 1/3 higher if they auction.The difference in the payoffs decreases rapidly with market size and vanishes in the limit “large”economy. When sellers can choose whether to post prices or auction in the 2-by-2- case, allcombinations (auction-auction, post-post, and auction-post) can occur in equilibrium if sellerschoose mechanism and price simultaneously. However, if sellers choose mechanism before pricethen the dominant strategy equilibrium has both sellers auctioning.