On the Game-Theoretic Foundations of Competitive Search Equilibrium

Abstract

We provide a unified directed search framework with general production and matching specifications that encompasses most of the existing literature. We prove the existence of subgame perfect Nash equilibria in pure firm strategies in a finite version of the model.We use this result to derive a more complete characterization of the equilibrium set for the finite economy and to extend convergence results as the economy becomes large to general production and matching specifications. The latter extends the micro-foundations for the standard market-utility assumption used in competitive search models with a continuum of agents to new environments.

Efficient Firm Dynamics in a Frictional Labor Market

“…Much of this work considers large economies (see, e.g., Moen (1997), Acemoglu and Shimer (1999a), Shi (2001), Shimer (2005a), Eeckhout and Kircher (2010)) whose micro-foundations combine Bertrand-style contract posting with coordination frictions: sometimes multiple workers apply for the same job and only one of them can be hired (e.g. Peters (1991), Burdett, Shi, and Wright (2001), Galenianos and Kircher (2010)). These microfoundations can be extended to a multi-worker firm setting if one assumes that excess applicants for one position cannot fill another position at the same firm.…”

“…Following most of the literature, workers are restricted to apply for only one wage per period. Galenianos and Kircher (2010) and Kircher (2009) allow for search for multiple wages, and even though results differ, there are large segments of wages in which the market essentially resembles the restricted one-wage-per-period search models.…”

“…The reason for tractability is that firms compete publicly for workers, which links all decisions of existing firms to those of new entrants via an aggregate arbitrage condition. The logic is different from standard free-entry arguments, 9 but builds on Menzio and Moen (2010) whose approach is nevertheless substantially simpler because they consider short-lived firms whose histories are 7 Posting and full specification in payments upon hiring are present for example in Galenianos and Kircher (2010), but efficiency fails because of an intensive margin (search intensity) on the workers' side which is not internalized. Guerrieri (2008) introduces an intensive margin through moral hazard and finds efficiency in steady state but not out of steady state.…”

Informative Advertising in Directed Search

“…9 The advertising technology is consistent with modern marketing channels such as portal-site advertising, television advertising and vacancy-posting on online matchmakers. 10 Example. Consider a constant-reach, independent readership (CRIR) advertising technology.…”

“…This advertising technology prevails in those traditional mailbox advertising and phone-call advertising where the consumer reach depends on the investment per capita. 10 For instance, in labor markets, the advertising cost of a firm depends on the number of jobhunting sites it posts its ads but not the number of potential job seekers. 6 is exposed to an ad published in any given website.…”