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Coarse Matching and Price Discrimination

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  • Hoppe, Heidrun C.
  • Moldovanu, Benny
  • Ozdenoren, Emre

Abstract

We study two-sided markets with heterogeneous, privately informed agents who gain from being matched with better partners from the other side. Agents are matched through an intermediary. Our main results quantify the relative attractiveness of a coarse matching scheme consisting of two classes of agents on each side, in terms of matching surplus (output), the intermediary's revenue, and the agents' welfare (defined by the total surplus minus payments to the intermediary). In a nutshell, our philosophy is that, if the worst-case scenario under coarse matching is not too bad relative to what is achievable by more complex, finer schemes, a coarse matching scheme will turn out to be preferable once the various transaction costs associated with fine schemes are taken into account. Similarly, coarse matching schemes can be significantly better than completely random matching, requiring only a minimal amount of information.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 6041.

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Date of creation: Jan 2007
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Handle: RePEc:cpr:ceprdp:6041

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Keywords: Matching; Nonlinear Pricing;

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References

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  1. Ettore Damiano & Hao Li, 2007. "Price discrimination and efficient matching," Economic Theory, Springer, vol. 30(2), pages 243-263, February.
  2. Jean‐Charles Rochet & Jean Tirole, 2006. "Two‐sided markets: a progress report," RAND Journal of Economics, RAND Corporation, vol. 37(3), pages 645-667, 09.
  3. Burdett, Ken & Coles, Melvyn G, 1997. "Marriage and Class," The Quarterly Journal of Economics, MIT Press, vol. 112(1), pages 141-68, February.
  4. Chao, Hung-po & Wilson, Robert, 1987. "Priority Service: Pricing, Investment, and Market Organization," American Economic Review, American Economic Association, vol. 77(5), pages 899-916, December.
  5. Jean-Charles Rochet & Jean Tirole, 2003. "Platform Competition in Two-Sided Markets," Journal of the European Economic Association, MIT Press, vol. 1(4), pages 990-1029, 06.
  6. Neeman, Zvika, 2003. "The effectiveness of English auctions," Games and Economic Behavior, Elsevier, vol. 43(2), pages 214-238, May.
  7. 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.
  8. Wilson, Robert B, 1989. "Efficient and Competitive Rationing," Econometrica, Econometric Society, vol. 57(1), pages 1-40, January.
  9. Roughgarden, Tim & Tardos, Eva, 2004. "Bounding the inefficiency of equilibria in nonatomic congestion games," Games and Economic Behavior, Elsevier, vol. 47(2), pages 389-403, May.
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Cited by:
  1. De Fraja, Gianni & Sákovics, József, 2010. "Exclusive Nightclubs and Lonely Hearts Columns: Non-monotone Participation in Optional Intermediation," CEPR Discussion Papers 8059, C.E.P.R. Discussion Papers.

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