Match Quality, Search, and the Internet Market for Used Books

ABSTRACT This article examines effects of internet search technologies on match‐quality markets. A model in which sellers of unusual objects wait for high‐value buyers illustrates how more efficient search may simultaneously increase price levels, price dispersion, and social welfare. A reduced‐form analysis of the used‐book market finds support for several nuanced model predictions. Estimates from a novel structural framework indicate the shift to online sales more than doubled social welfare, with gains roughly evenly split between booksellers and consumers. Amazon's acquisition and incorporation of a used‐book marketplace spurred price competition, but appears to have had minimal welfare effects.