Cross-Subsidization and Matching Design
AbstractWe develop a theory of price discrimination in many-to-many matching markets in which agents’ preferences are vertically and horizontally differentiated. The optimal plans induce negative assortative matching at the margin: agents with a low value for interacting with other agents are included in the matching sets of only those agents from the opposite side whose value for matching is sufficiently high (cross-subsidization). We deliver testable predictions relating the optimal matching plans and price schedules to the distribution of the agents’ preferences and attractiveness. The analysis has implications for the design of business-to-business platforms, advertising, and cable TV packages. JEL Classification Numbers: D82
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Bibliographic InfoPaper provided by Northwestern University, Center for Mathematical Studies in Economics and Management Science in its series Discussion Papers with number 1559.
Date of creation: 01 Jan 2013
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Postal: Center for Mathematical Studies in Economics and Management Science, Northwestern University, 580 Jacobs Center, 2001 Sheridan Road, Evanston, IL 60208-2014
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Find related papers by JEL classification:
- D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
This paper has been announced in the following NEP Reports:
- NEP-ALL-2013-03-16 (All new papers)
- NEP-GTH-2013-03-16 (Game Theory)
- NEP-MIC-2013-03-16 (Microeconomics)
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