Expert-mediated search

Increasingly in both traditional, and especially Internet-based marketplaces, knowledge is becoming a traded commodity. This paper considers the impact of the presence of knowledge-brokers, or experts, on search-based markets with noisy signals. For example, consider a consumer looking for a used car on a large Internet marketplace. She sees noisy signals of the true value of any car she looks at the advertisement for, and can disambiguate this signal by paying for the services of an expert (for example, getting a Carfax report, or taking the car to a mechanic for an inspection). Both the consumer and the expert are rational, self-interested agents. We present a model for such search environments, and analyze several aspects of the model, making three main contributions: (1) We derive the consumer's optimal search strategy in environments with noisy signals, with and without the option of consulting an expert; (2) We find the optimal strategy for maximizing the expert's profit; (3) We study the option of market designers to subsidize search in a way that improves overall social welfare. We illustrate our results in the context of a plausible distribution of signals and values.