Pricing and Matching with Frictions
AbstractSuppose that n buyers each want one unit and m sellers each have one or more units of a good. Sellers post prices, and then buyers choose sellers. In symmetric equilibrium, similar sellers all post one price, and buyers randomize. Hence, more or fewer buyers may arrive than a seller can accommodate. We call this frictions. We solve for prices and the endogenous matching function for finite n and m and consider the limit as n and m grow. The matching function displays decreasing returns but converges to constant returns. We argue that the standard matching function in the literature is misspecified and discuss implications for the Beveridge curve.
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Bibliographic InfoArticle provided by University of Chicago Press in its journal Journal of Political Economy.
Volume (Year): 109 (2001)
Issue (Month): 5 (October)
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Web page: http://www.journals.uchicago.edu/JPE/
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