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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. Cole, Harold L. & Mailath, George J. & Postlewaite, Andrew, 2001. "Efficient Non-Contractible Investments in Large Economies," Journal of Economic Theory, Elsevier, vol. 101(2), pages 333-373, December.
  2. repec:bla:restud:v:76:y:2009:i:1:p:253-281 is not listed on IDEAS
  3. Jeremy Bulow & Jonathan Levin, 2005. "Matching and Price Competition," NBER Working Papers 11506, National Bureau of Economic Research, Inc.
  4. Michael Ostrovsky & Michael Schwarz, 2008. "Information Disclosure and Unraveling in Matching Markets," NBER Working Papers 13766, National Bureau of Economic Research, Inc.
  5. 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.
  6. Rege, Mari, 2008. "Why do people care about social status?," Journal of Economic Behavior & Organization, Elsevier, vol. 66(2), pages 233-242, May.
  7. Masters, Adrian, 2011. "Commitment, advertising and efficiency of two-sided investment in competitive search equilibrium," Journal of Economic Dynamics and Control, Elsevier, vol. 35(7), pages 1017-1031, July.
  8. 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. Roig, Guillem, 2014. "What Determines Market Structure? An Explanation from Cooperative Investment with Non‐Exclusive Co," TSE Working Papers 14-482, Toulouse School of Economics (TSE).
  2. Azevedo, Eduardo M., 2014. "Imperfect competition in two-sided matching markets," Games and Economic Behavior, Elsevier, vol. 83(C), pages 207-223.
  3. Kohei Kawamura (University of Edinburgh) and Jozsef Sakovics (University of Edinburgh), 2013. "Spillovers of Equal Treatment in Wage Offers," ESE Discussion Papers 221, Edinburgh School of Economics, University of Edinburgh.
  4. 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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