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Pricing and Investments in Matching Markets

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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

Paper provided by Cowles Foundation for Research in Economics, Yale University in its series Cowles Foundation Discussion Papers with number 1810.

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Length: 68 pages
Date of creation: Jul 2011
Date of revision:
Publication status: Published in Theoretical Economics (May 2013), 8(2): 535-590
Handle: RePEc:cwl:cwldpp:1810

Note: CFP 1408
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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. Michael Ostrovsky & Michael Schwarz, 2008. "Information Disclosure and Unraveling in Matching Markets," NBER Working Papers 13766, National Bureau of Economic Research, Inc.
  3. 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.
  4. Bulow, Jeremy I. & Levin, Jonathan, 2003. "Matching and Price Competition," Research Papers 1818, Stanford University, Graduate School of Business.
  5. Sean Nicholson, 2003. "Barriers to Entering Medical Specialties," NBER Working Papers 9649, National Bureau of Economic Research, Inc.
  6. 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.
  7. Rege, Mari, 2008. "Why do people care about social status?," Journal of Economic Behavior & Organization, Elsevier, vol. 66(2), pages 233-242, May.
  8. repec:bla:restud:v:76:y:2009:i:1:p:253-281 is not listed on IDEAS
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Cited by:
  1. Azevedo, Eduardo M., 2014. "Imperfect competition in two-sided matching markets," Games and Economic Behavior, Elsevier, vol. 83(C), pages 207-223.
  2. 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.
  3. Kohei, Kawamura & József, Sákovics, 2013. "Spillovers of Equal Treatment in Wage Offers," SIRE Discussion Papers 2013-15, Scottish Institute for Research in Economics (SIRE).

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