Information and learning in markets

This dissertation consists of three essays. I investigate information dynamics under different settings. In Chapter 1, I consider a market with a profit-maximizing monopolist seller who has K identical goods to sell before a deadline. At each date, the seller posts a price and the quantity available but cannot commit to future offers. Over time, potential buyers with different reservation values enter the market. Buyers can strategically time their purchases, trading off (1) a possibly lower price in the future with the risk of being rationed and (2) the current price without competition. I analyze equilibrium price paths and buyers\u27 purchase behavior. I show that incentive compatible price paths decline smoothly over the time period between sales and jump up immediately after a transaction. In equilibrium, high value buyers purchase immediately on arrival. Crucially, before the deadline, the seller may periodically liquidate part of his stock via a fire sale to secure a higher price in the future. Intuitively, these sales allow the seller to `commit\u27 to high prices going forward. The possibility of fire sales before the deadline implies that the allocation may be inefficient. The inefficiency arises from the scarce good being misallocated to low value buyers, rather than the withholding inefficiency that is normally seen with a monopolist seller. In chapter 2, I study dynamic bargaining with uncertainty over the buyer\u27s valuation and the seller\u27s outside option. A long-lived seller makes offers to a long-lived buyer whose value is private information. There may exist a short-lived buyer, whose value is higher than that of the long-lived buyer. The arrival of a short-lived buyer, if she exists, is determined by a Poisson process. I characterize the unique perfect Bayesian equilibrium. The equilibrium displays price fluctuations: in some periods, the seller charges a high price unacceptable to the long-lived buyer, in the hope that the short-lived buyer appears in that period; in the other periods, he offers a price attractive to some values of the long-lived buyer. The price dynamics result from the interaction between two learning processes: exogenous learning about the existence of short-lived buyers, and endogenous learning about the long-lived buyer\u27s value. In chapter 3, I study the dynamics of workers\u27 on-the-job search behavior and its consequences in an equilibrium labor market. In a model with both directed search and learning about the match quality of firm-worker pairs, I highlight the job search target effect of learning: as a worker updates the evaluation of his current job, he adjusts his on-the-job search target, which results in a different job finding rate. I show that this model generates a non-monotonic relation between the employment-to-employment transition rate and tenure, which provides a new explanation of the hump-shaped separation rate-tenure profile