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Market Culture: How Norms Governing Exploding Offers Affect Market Performance

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  • Muriel Niederle
  • Alvin E. Roth

Abstract

Many markets have organizations that influence or try to establish norms concerning when offers can be made, accepted and rejected. Examining a dozen previously studied markets suggests that markets in which transactions are made far in advance are markets in which it is acceptable for firms to make exploding offers, and unacceptable for workers to renege on commitments they make, however early. But this evidence is only suggestive, because the markets differ in many ways other than norms concerning offers. Laboratory experiments allow us to isolate the effects of exploding offers and binding acceptances. In a simple environment, in which uncertainty about applicants' quality is resolved over time, we find inefficient early contracting when firms can make exploding offers and applicants' acceptances are binding. Relaxing either of these two conditions causes matching to take place later, when more information about applicants' qualities is available, and consequently results in higher efficiency and fewer blocking pairs. This suggests that elements of market culture may play an important role in influencing market performance.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 10256.

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Date of creation: Feb 2004
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Publication status: published as Niederle, Muriel and Alvin E. Roth. “Market Culture: How Rules Governing Exploding Offers Affect Market Performance." American Economic Journal: Microeconomics 1, 2 (August 2009): 199-219.
Handle: RePEc:nbr:nberwo:10256

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  1. Christopher Avery & Christine Jolls & Richard Posner & Alvin E. Roth, 2007. "The New Market for Federal Judicial Law Clerks," NBER Working Papers 13213, National Bureau of Economic Research, Inc.
  2. C. Nicholas McKinney & Muriel Niederle & Alvin E. Roth, 2005. "The Collapse of a Medical Labor Clearinghouse (and Why Such Failures Are Rare)," American Economic Review, American Economic Association, American Economic Association, vol. 95(3), pages 878-889, June.
  3. Roth, Alvin E & Xing, Xiaolin, 1997. "Turnaround Time and Bottlenecks in Market Clearing: Decentralized Matching in the Market for Clinical Psychologists," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 105(2), pages 284-329, April.
  4. M. Utku Unver, 1999. "Backward Unraveling over Time: The Evolution of Strategic Behavior in the Entry-Level British Medical Labor Markets," Game Theory and Information, EconWPA 9907001, EconWPA, revised 16 Jul 1999.
  5. Atila Abdulkadiroglu & Tayfun Sönmez, 2003. "School Choice: A Mechanism Design Approach," American Economic Review, American Economic Association, American Economic Association, vol. 93(3), pages 729-747, June.
  6. Roth, Alvin E, 1991. "A Natural Experiment in the Organization of Entry-Level Labor Markets: Regional Markets for New Physicians and Surgeons in the United Kingdom," American Economic Review, American Economic Association, American Economic Association, vol. 81(3), pages 415-40, June.
  7. Alvin E. Roth & Axel Ockenfels, . "Last-Minute Bidding and the Rules for Ending Second-Price Auctions: Evidence from eBay and Amazon Auctions on the Internet," Papers on Strategic Interaction, Max Planck Institute of Economics, Strategic Interaction Group 2002-32, Max Planck Institute of Economics, Strategic Interaction Group.
  8. John H. Kagel & Alvin E. Roth, 2000. "The Dynamics Of Reorganization In Matching Markets: A Laboratory Experiment Motivated By A Natural Experiment," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 115(1), pages 201-235, February.
  9. Li, Hao & Rosen, Sherwin, 1998. "Unraveling in Matching Markets," American Economic Review, American Economic Association, American Economic Association, vol. 88(3), pages 371-87, June.
  10. Yan Chen & Tayfun Sönmez, 2004. "School Choice: An Experimental Study," Boston College Working Papers in Economics, Boston College Department of Economics 622, Boston College Department of Economics.
  11. Haruvy, Ernan & Roth, Alvin E. & Unver, M. Utku, 2006. "The dynamics of law clerk matching: An experimental and computational investigation of proposals for reform of the market," Journal of Economic Dynamics and Control, Elsevier, Elsevier, vol. 30(3), pages 457-486, March.
  12. Hao Li & Wing Suen, 2000. "Risk Sharing, Sorting, and Early Contracting," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 108(5), pages 1058-1087, October.
  13. Muriel Niederle & Alvin E Roth, 2003. "Unraveling Reduces Mobility in a Labor Market: Gastroenterology with and without a Centralized Match," Levine's Working Paper Archive 506439000000000428, David K. Levine.
  14. Roth, Alvin E, 1984. "The Evolution of the Labor Market for Medical Interns and Residents: A Case Study in Game Theory," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 92(6), pages 991-1016, December.
  15. Alvin E. Roth & Elliott Peranson, 1999. "The Redesign of the Matching Market for American Physicians: Some Engineering Aspects of Economic Design," NBER Working Papers 6963, National Bureau of Economic Research, Inc.
  16. Posner, Richard A. & Avery, Christopher & Jolls, Christine & Roth, Alvin, 2001. "The Market for Federal Judicial Law Clerks," Scholarly Articles 2623748, Harvard University Department of Economics.
  17. Wing Suen, 2000. "A Competitive Theory of Equilibrium and Disequilibrium Unravelling in Two-Sided Matching," RAND Journal of Economics, The RAND Corporation, vol. 31(1), pages 101-120, Spring.
  18. Mongell, Susan & Roth, Alvin E, 1991. "Sorority Rush as a Two-Sided Matching Mechanism," American Economic Review, American Economic Association, American Economic Association, vol. 81(3), pages 441-64, June.
  19. C. Nicholas McKinney & Muriel Niederle & Alvin E. Roth, 2003. "The collapse of a medical clearinghouse (and why such failures are rare)," NBER Working Papers 9467, National Bureau of Economic Research, Inc.
  20. Roth, Alvin E & Xing, Xiaolin, 1994. "Jumping the Gun: Imperfections and Institutions Related to the Timing of Market Transactions," American Economic Review, American Economic Association, American Economic Association, vol. 84(4), pages 992-1044, September.
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