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Pricing and Investments in Matching Markets

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  • George J. Mailath
  • Andrew Postlewaite
  • Larry Samuelson

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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Paper provided by David K. Levine in its series Levine's Working Paper Archive with number 786969000000000162.

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Date of creation: 31 Jul 2011
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Handle: RePEc:cla:levarc:786969000000000162

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  1. Harold L. Cole & George J. Mailath & Andrew Postlewaite, . "Efficient Non-Contractible Investments," Penn CARESS Working Papers, Penn Economics Department 08d6793d32cab8f6e1f46dac0, Penn Economics Department.
  2. Masters, Adrian, 2011. "Commitment, advertising and efficiency of two-sided investment in competitive search equilibrium," Journal of Economic Dynamics and Control, Elsevier, Elsevier, vol. 35(7), pages 1017-1031, July.
  3. Rege, Mari, 2008. "Why do people care about social status?," Journal of Economic Behavior & Organization, Elsevier, Elsevier, vol. 66(2), pages 233-242, May.
  4. Michael Ostrovsky & Michael Schwarz, 2008. "Information Disclosure and Unraveling in Matching Markets," NBER Working Papers 13766, National Bureau of Economic Research, Inc.
  5. Hoppe, Heidrun C. & Moldovanu, Benny & Sela, Aner, 2005. "The Theory of Assortative Matching Based on Costly Signals," Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems 85, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.
  6. Sean Nicholson, 2003. "Barriers to Entering Medical Specialties," NBER Working Papers 9649, National Bureau of Economic Research, Inc.
  7. Harold L. Cole & George J. Mailath & Andrew Postlewaite, . "Efficient Non-Contractible Investments in Large Economies," Penn CARESS Working Papers, Penn Economics Department e9e0aca257b20d3bb6bb4a52a, Penn Economics Department.
  8. Jeremy Bulow & Jonathan Levin, 2006. "Matching and Price Competition," American Economic Review, American Economic Association, American Economic Association, vol. 96(3), pages 652-668, June.
  9. repec:bla:restud:v:76:y:2009:i:1:p:253-281 is not listed on IDEAS
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Cited by:
  1. Kohei Kawamura (University of Edinburgh) and Jozsef Sakovics (University of Edinburgh), 2013. "Spillovers of Equal Treatment in Wage Offers," ESE Discussion Papers, Edinburgh School of Economics, University of Edinburgh 221, Edinburgh School of Economics, University of Edinburgh.
  2. Roig, Guillem, 2014. "What Determines Market Structure? An Explanation from Cooperative Investment with Non‐Exclusive Co," TSE Working Papers, Toulouse School of Economics (TSE) 14-482, Toulouse School of Economics (TSE).
  3. Azevedo, Eduardo M., 2014. "Imperfect competition in two-sided matching markets," Games and Economic Behavior, Elsevier, Elsevier, vol. 83(C), pages 207-223.
  4. George Mailath & Andrew Postlewaite & Larry Samuelson, 2012. "Premuneration Values and Investments in Matching Markets," PIER Working Paper Archive 12-008, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania.

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