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Matching and Price Competition

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Author Info
Jeremy Bulow
Jonathan Levin

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Abstract

We develop a model in which firms set impersonal salary levels before matching with workers. Salaries fall relative to any competitive equilibrium while profits rise by almost as much, implying little inefficiency. Furthermore, the best firms gain the most from the system while wages become compressed. We discuss the performance of alternative institutions and the recent antitrust case against the National Residency Matching Program in light of our results.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 11506.

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Date of creation: Aug 2005
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Handle: RePEc:nbr:nberwo:11506

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Find related papers by JEL classification:
D44 - Microeconomics - - Market Structure and Pricing - - - Auctions
J41 - Labor and Demographic Economics - - Particular Labor Markets - - - Labor Contracts
L44 - Industrial Organization - - Antitrust Issues and Policies - - - Antitrust Policy and Public Enterprise, Nonprofit Institutions, and Professional Organizations

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Kamecke, Ulrich, 1998. "Wage Formation in a Centralized Matching Market," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 39(1), pages 33-53, February.
  2. 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. [Downloadable!] (restricted)
    Other versions:
  3. 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. [Downloadable!] (restricted)
    Other versions:
  4. 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, vol. 84(4), pages 992-1044, September. [Downloadable!] (restricted)
  5. Jonathan Levin & Jeremy Bulow, 2004. "Matching and Price Competition," Econometric Society 2004 North American Winter Meetings 350, Econometric Society. [Downloadable!]
    Other versions:
  6. 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, vol. 92(6), pages 991-1016, December. [Downloadable!] (restricted)
  7. Baye, Michael R & Kovenock, Dan & de Vries, Casper G, 1993. "Rigging the Lobbying Process: An Application of the All-Pay Auction," American Economic Review, American Economic Association, vol. 83(1), pages 289-94, March. [Downloadable!] (restricted)
    Other versions:
  8. Crawford, Vincent P & Knoer, Elsie Marie, 1981. "Job Matching with Heterogeneous Firms and Workers," Econometrica, Econometric Society, vol. 49(2), pages 437-50, March. [Downloadable!] (restricted)
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Ed Hopkins, 2006. "Job Market Signalling of Relative Position, or Becker Married to Spence," Levine's Bibliography 321307000000000553, UCLA Department of Economics. [Downloadable!]
    Other versions:
  2. Fuhito Kojima, 2007. "Matching and Price Competition: Comment," American Economic Review, American Economic Association, vol. 97(3), pages 1027-1031, June.
  3. Alvin Roth, 2008. "Deferred acceptance algorithms: history, theory, practice, and open questions," International Journal of Game Theory, Springer, vol. 36(3), pages 537-569, March. [Downloadable!] (restricted)
    Other versions:
  4. Muriel Niederle & Alvin E. Roth, 2007. "The Effects of a Centralized Clearinghouse on Job Placement, Wages, and Hiring Practices," NBER Working Papers 13529, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  5. Hoppe, Heidrun C. & Moldovanu, Benny & Sela, Aner, 2006. "The Theory of Assortative Matching Based on Costly Signals," CEPR Discussion Papers 5543, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
    Other versions:
  6. Georgy Artemov, 2008. "Matching and price competition: would personalized prices help?," International Journal of Game Theory, Springer, vol. 36(3), pages 321-331, March. [Downloadable!] (restricted)
  7. John W. Hatfield & Paul Milgrom, 2005. "Auctions, Matching and the Law of Aggregate Demand," Levine's Bibliography 122247000000000780, UCLA Department of Economics. [Downloadable!]
  8. Peters, Michael, 2004. "Innis Lecture: Hedonic Equilibrium," Micro Theory Working Papers peters-04-07-30-12-06-27, Microeconomics.ca Website, revised 08 Apr 2008. [Downloadable!]
    Other versions:
  9. Hideo Konishi & Margarita Sapozhnikov, 2006. "Decentralized Matching Markets with Endogenous Salaries," Boston College Working Papers in Economics 654, Boston College Department of Economics, revised 03 Jan 2008. [Downloadable!]
  10. 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. [Downloadable!] (restricted)
    Other versions:
  11. Jeremy Bulow & Jonathan Levin, 2005. "Matching and Price Competition," NBER Working Papers 11506, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  12. Vincent Crawford, 2005. "The Flexible-Salary Match: A Proposal to Increase the Salary Flexibility of the National Resident Matching Program," University of California at San Diego, Economics Working Paper Series 2005-02, Department of Economics, UC San Diego. [Downloadable!]
  13. Peters, Michael, 2004. "The Pre-Marital Investment Game," Micro Theory Working Papers peters-04-02-18-01-42-09, Microeconomics.ca Website, revised 13 Sep 2006. [Downloadable!]
    Other versions:
  14. Philipp Kircher, 2008. "Efficiency of Simultaneous Search," PIER Working Paper Archive 08-004, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania. [Downloadable!]
  15. Muriel Niederle, 2006. "Competitive Wages in a Match with Ordered Contracts," NBER Working Papers 12334, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  16. Muriel Niederle & Alvin E. Roth, 2005. "The Gastroenterology Fellowship Market: Should There Be a Match?," American Economic Review, American Economic Association, vol. 95(2), pages 372-375, May. [Downloadable!] (restricted)
  17. 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, vol. 95(3), pages 878-889, June. [Downloadable!] (restricted)
  18. John William Hatfield & Paul R. Milgrom, 2005. "Matching with Contracts," American Economic Review, American Economic Association, vol. 95(4), pages 913-935, September. [Downloadable!] (restricted)
    Other versions:
  19. ROCHET, Jean-Charles & TIROLE, Jean, 2005. "Two-Sided Markets : A Progress Report," IDEI Working Papers 275, Institut d'Économie Industrielle (IDEI), Toulouse. [Downloadable!]
    Other versions:
    • Jean-Charles Rochet Author-Email: rochet@cict.fr Author-Workplace-Name: IDEI, University of Toulouse & Jean Tirole Author-Email: tirole@cict.fr Author-Workplace-Name: IDEI, University of Toulouse, 2006. "Two-Sided Markets: A Progress Report," RAND Journal of Economics, The RAND Corporation, vol. 37(3), pages 645-667, Autumn.
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