Sequentially mixed search and equilibrium price dispersion

Many markets feature sequentially mixed search (SMS), which is search directed toward a price distribution followed by noisy matching with multiple offers. I construct a tractable model of SMS, establish existence of a unique equilibrium, and prove that the equilibrium is constrained efficient. Although individuals on each side of the market are homogeneous and search is directed, the equilibrium has a non-degenerate and continuous distribution of posted prices on a connected support. Despite the possibility of multiple offers, the highest price is lower than the joint value of a match so that both sides of the market obtain strictly positive surpluses of trade at all equilibrium prices. This feature captures the common practice that searchers restrict search below a price bound. Moreover, I show that an increase in the meeting efficiency widens price dispersion, which helps explain the puzzling fact that the increased use of the Internet has not reduced price dispersion.