The Decision to Seek or Be Sought

Abstract

A one-shot market with two sides is considered where everybody can be matched with at most one person. Individuals have to find trading partners on their own. Whether searching or waiting is the optimal strategy is the central question of this paper. In a market where searching and waiting are done exclusively by one market side, it is more efficient if the long market side searches. In a market where on both sides some individuals search and others stay put, there are also mixed equilibria which are even more efficient. The matching friction due to uncoordinated search by individuals implies that larger market are in general less efficient than a collection of smaller markets.