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Our conclusion is that despite the prevalence of information in the market, ask prices play a role consistent with the predictions of search models.
In this section we discuss some models that explain a functional role for ask prices. We outline the empirical predictions of these models, discuss their applicability to an online exchange, and contrast them with some alternative explanations regarding the role of ask prices.
We should note first that in a perfect information setting with costless search, ask prices will play no functional role.
Models that incorporate ask prices into the search framework typically take two approaches, both of which involve justifying a negative relationship between the ask price and the arrival rate of buyers.
These models can motivate variation in ask prices for identical goods in two ways.
Search models also predict a relationship between ask prices, offers, and transaction prices.
These models find that a higher variance of buyers' valuations leads to higher ask prices, because the profitability of the high ask price strategy grows.
Most of the existing literature testing the predictions regarding search behavior and ask prices uses data from housing markets.
Some of the work also tests the hypothesis that the variance of buyers' willingness to pay will affect ask prices, offers, and time to sale.