Search Frictions in Many‐to‐one Markets*

Abstract

This article studies how search frictions affect competition and matching efficiency in many‐to‐one loan markets where a borrower requires support from multiple investors and coordination is desired but absent. We develop a dynamic search model and show that borrowers employ mixed strategies in quoting interest rates. More importantly, we find that in many‐to‐one markets, the rate dispersion caused by search frictions facilitates coordination and hence improves allocation efficiency relative to a no friction environment. Further, we empirically present stylized facts consistent with the theoretical predictions and structurally estimate the impact of search frictions on matching efficiency.