Agentic Markets: Equilibrium Effects of Improving Consumer Search

2026-03-26

AI Summary

This study investigates how AI-assisted search technologies affect learning efficiency and consumer welfare in two-sided markets. By developing a dynamic equilibrium model in which consumers incur search costs to acquire product-matching signals, the paper uniquely incorporates AI agent conversations into the market learning process, integrating insights from information economics and price competition. The analysis reveals that reducing search costs consistently enhances both learning efficiency and consumer surplus. However, improving the precision of search information benefits consumers only when the market can simultaneously learn from AI agent interactions—such as by observing their dialogues; otherwise, heightened precision may dampen firm competition and ultimately harm consumer welfare. These findings uncover a counterintuitive downside of more accurate search technologies and offer novel implications for the design of AI-driven markets.

Abstract

Motivated by agentic markets -- two-sided markets in which consumers and businesses are assisted by AI tools that facilitate consumers' search -- we study the impact of improved search technology on learning and welfare in markets. We put forth a model where consumers engage in costly search to acquire signals of product fit prior to purchase. The market tracks indications of fit for searched products and indications of quality for chosen products, thereby guiding searches. We characterize the long-run steady-state of the resulting dynamics as well as the impact of improving search technology. We find cheaper search improves learning and consumer surplus, whereas more informative search can degrade both unless the market learns as much as consumers about the products by, for example, ``reading the transcripts'' of agentic conversations. Finally, we consider the impact of search improvements on how businesses set prices. At equilibrium prices in symmetric markets, consumer surplus is improved by cheaper search but may be decreased by more informative search, due to weakened inter-business competition.

Problem

• agentic markets
• consumer search
• search technology
• market equilibrium
• consumer surplus

Innovation

• Agentic Markets
• Consumer Search
• AI-mediated Interaction
• Market Learning
• Information Asymmetry