The Power of Search Technology in Arbitrage

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Reduced search costs would not lead to more arbitrage unless it affected the ability to sustain such ______

constraints

In the region of study, fishermen reported no such ______ on fish marketing during this period

constraints

For example, with a linear demand curve, P ⫽ a ⫺ bQ, the percent increase in welfare from arbitrage is given by Xb(Q H ⫺ Q L ⫺ X)/(a(Q H ⫹ Q L ) ⫺.5b(Q 2L ⫹ Q 2H )). If a ⫽ 10, b ⫽.1, QL ⫽ 1, and QH ⫽ 9, the gain ranges from 12 percent when one fish is arbitraged to 27 percent when ______ fish are arbitraged (though we must subtract transportation costs)

four

Consider the case with zero search costs and perfect information; in equilibrium, the price difference between the markets is ␶ /x̃, where x̃ is the catch of the marginal fisherman who ______

switches

Then the area of rectangle C above P(QH – X) (i.e., the top point of the quasi-trapezoid E⫹F) is (X/x̃)␶. Note that (X/x̃) is greater than the total number of ______ who switch markets

fishermen

the ______ barked

dog

the ______ meowed

cat

Fishermen may collude to punish buyers who purchase from nonlocal fishermen, buyers may collude to punish fishermen who sell outside their local market, or there may be interlinked transactions, such as when a fisherman receives credit from a buyer and in exchange must always sell to them (as seen in Giné and Klonner and Platteua ). In these cases, reduced search costs would not lead to more arbitrage unless it affected the ability to sustain such ______. Answer

constraints

Then the area of rectangle C above P(QH – X) (i.e., the top point of the quasi-trapezoid E⫹F) is (X/x̃)␶. Note that (X/x̃) is greater than the total number of ______ who switch markets. Answer

fishermen

For example, with a linear demand curve, P ⫽ a ⫺ bQ, the percent increase in welfare from arbitrage is given by Xb(Q H ⫺ Q L ⫺ X)/(a(Q H ⫹ Q L ) ⫺.5b(Q 2L ⫹ Q 2H )). If a ⫽ 10, b ⫽.1, QL ⫽ 1, and QH ⫽ 9, the gain ranges from 12 percent when one fish is arbitraged to 27 percent when ______ fish are arbitraged (though we must subtract transportation costs). Answer

four

Consider the case with zero search costs and perfect information; in equilibrium, the price difference between the markets is ␶ /x̃, where x̃ is the catch of the marginal fisherman who ______. Answer

switches

In the region of study, fishermen reported no such ______ on fish marketing during this period. Answer

constraints

Understanding the Role of Search Technology in Arbitrage: Test your knowledge on how the introduction of search technology can facilitate arbitrage opportunities despite initial costs. Explore the impact of search costs and the advantages it provides to fishermen in learning the state of their environment.

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