Contents

I propose a model of search, where sellers can sell two types of services of equal quality and production cost to two types of buyers. A goodmatching produces a higher surplus than a mismatch. Production and demand are atomistic under (reduced) search frictions. Sellers are competing in price. I show that such a model yields several stable outcomes, but that under positive search costs the market outcome is nor necessarily e ¢ cient nor predictable. A social planner can improve welfare by regulating prices and types. The ine ¢ ciency of the market is driven by the coexistence of search costs and atomistic sellers. Product di¤erentiation ca