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Pricing and investments in matching markets

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  • Mailath, George J.

    ()
    (Department of Economics, University of Pennsylvania)

  • Samuelson, Larry

    ()
    (Department of Economics, Yale University)

  • Postlewaite, Andrew

    ()
    (Department of Economics, University of Pennsylvania)

Abstract

Different markets are cleared by different types of prices—seller-specific prices that are uniform across buyers in some markets, and personalized prices tailored to the buyer in others. We examine a setting in which buyers and sellers make investments before matching in a competitive market. We introduce the notion of premuneration values—the values to the transacting agents prior to any transfers— created by a buyer-seller match. Personalized price equilibrium outcomes are independent of premuneration values and exhibit inefficiencies only in the event of “coordination failures,” while uniform-price equilibria depend on premuneration values and in general feature inefficient investments even without coordination failures. There is thus a trade-off between the costs of personalizing prices and the inefficient investments under uniform prices. We characterize the premuneration values under which uniform-price equilibria similarly exhibit inefficiencies only in the event of coordination failures.

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Bibliographic Info

Article provided by Econometric Society in its journal Theoretical Economics.

Volume (Year): 8 (2013)
Issue (Month): 2 (May)
Pages:

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Handle: RePEc:the:publsh:1189

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Web page: http://econtheory.org

Related research

Keywords: Directed search; matching; premuneration value; prematch investments; search;

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References

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  1. Ostrovsky, Michael & Schwarz, Michael, 2007. "Information Disclosure and Unraveling in Matching Markets," Research Papers 1965, Stanford University, Graduate School of Business.
  2. Rege, Mari, 2008. "Why do people care about social status?," Journal of Economic Behavior & Organization, Elsevier, vol. 66(2), pages 233-242, May.
  3. Jeremy Bulow & Jonathan Levin, 2006. "Matching and Price Competition," American Economic Review, American Economic Association, vol. 96(3), pages 652-668, June.
  4. Heidrun C. Hoppe & Benny Moldovanu & Aner Sela, 2009. "The Theory of Assortative Matching Based on Costly Signals," Review of Economic Studies, Oxford University Press, vol. 76(1), pages 253-281.
  5. Harold L. Cole & George J. Mailath & Andrew Postlewaite, 1998. "Efficient non-contractible investments," Staff Report 253, Federal Reserve Bank of Minneapolis.
  6. Harold L. Cole & George J. Mailath & Andrew Postlewaite, . "Efficient Non-Contractible Investments in Large Economies," CARESS Working Papres 00-05, University of Pennsylvania Center for Analytic Research and Economics in the Social Sciences.
  7. repec:bla:restud:v:76:y:2009:i:1:p:253-281 is not listed on IDEAS
  8. Adrian Masters, 2008. "Commitment, advertising and efficiency of two-sided investment in competitive search equilibrium," 2008 Meeting Papers 260, Society for Economic Dynamics.
  9. Sean Nicholson, 2003. "Barriers to Entering Medical Specialties," NBER Working Papers 9649, National Bureau of Economic Research, Inc.
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Cited by:
  1. Kohei, Kawamura & József, Sákovics, 2013. "Spillovers of Equal Treatment in Wage Offers," SIRE Discussion Papers 2013-15, Scottish Institute for Research in Economics (SIRE).
  2. Azevedo, Eduardo M., 2014. "Imperfect competition in two-sided matching markets," Games and Economic Behavior, Elsevier, vol. 83(C), pages 207-223.
  3. George J. Mailath & Andrew Postlewaite & Larry Samuelson, 2013. "Premuneration Values and Investments in Matching Markets," PIER Working Paper Archive 13-060, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania.

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