This allows us to test whether higher ask prices actually deter buyers from making offers.
As a theoretical matter it is difficult to say whether search costs as we have outlined them here would be significant enough to lead to the same patterns of ask prices, offers, and time to sale observed in other search markets.
Before we move to the empirical tests, it is worth discussing some alternative explanations regarding the role of ask prices. As we shall see, the predictions of the search model are observationally distinct from these competing explanations.
One might think that a natural alternative hypothesis would be that ask prices serve as a signal of unobserved quality.
However, even if ask prices served as signals of unobserved quality, the empirical predictions of the signaling model run counter to the predictions of the search model.
Another factor that could lead to an observed empirical relationship between ask prices and offers are omitted variables.
Our data consist of listings, ask prices, and offers for a sample of 301 Macintosh units.
ESTIMATING THE RELATIONSHIP BETWEEN ASK PRICES, OFFERS, AND TIME TO SALE
Under the search hypothesis, higher ask prices should deter offers, and this effect should be stronger in thinner markets.