Frictions in Product Markets
This is an invited chapter for the forthcoming Volume 4 of the Handbook of Industrial Organization. We focus on markets with frictions, such as transaction costs, asymmetric information, search and matching frictions. We discuss how such frictions affect allocations, favor the emergence of intermediaries or dealers, and potentially create market power. Our focus is mostly on markets with many participants rather than on transactions that are bilateral or involve a small number of players.
We thank three anonymous reviewers for their insightful suggestions. Alessandro Gavazza gratefully acknowledges financial support from the European Research Council under the Grant Agreements No. 771004, Alessandro Lizzeri gratefully acknowledges financial support from NSF grant SES-1949381. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research.
Alessandro Gavazza's disclosure of all relevant and material financial relationships is available on his website: https://sites.google.com/site/alessandrogavazza/disclosure