Two-Sided Search and Perfect Segregation with Fixed Search Costs

Abstract

This paper studies a two-sided search model with the following characteristics: there is a continuum of agents with different types in each population, match utility is nontransferable, and there is a fixed search cost that agents incur in each period. When utility functions are additively separable in types and strictly increasing in the partner's type, there exists a unique matching equilibrium that exhibits perfect segregation as in Smith (1997) and Burdett and Coles (1997); i.e., agents form clusters and mate only within them. The role of additive separability and fixed search costs is discussed and contrasted with the discounted case, and an intuitive explanation for the different results obtained in the literature is provided. Also, a simple suffcient condition on the match utility function and the density of types allow us to characterize the duration of the search for each type of agent.