"Pricing and Investments in Matching Markets",Second Version
AbstractDifferent 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 InfoPaper provided by Penn Institute for Economic Research, Department of Economics, University of Pennsylvania in its series PIER Working Paper Archive with number 10-037.
Length: 68 pages
Date of creation: 26 Jan 2010
Date of revision: 30 Nov 2010
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Find related papers by JEL classification:
- C78 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Bargaining Theory; Matching Theory
- D40 - Microeconomics - - Market Structure and Pricing - - - General
- D41 - Microeconomics - - Market Structure and Pricing - - - Perfect Competition
- D50 - Microeconomics - - General Equilibrium and Disequilibrium - - - General
- D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search, Learning, and Information
This paper has been announced in the following NEP Reports:
- NEP-ALL-2010-12-11 (All new papers)
- NEP-GTH-2010-12-11 (Game Theory)
- NEP-MIC-2010-12-11 (Microeconomics)
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- Bhaskar, Venkataraman & Hopkins, Ed, 2011.
"Marriage as a Rat Race: Noisy Pre-Marital Investments with Assortative Matching,"
CEPR Discussion Papers
8529, C.E.P.R. Discussion Papers.
- Bhaskar, V. & Hopkins, Ed, 2011. "Marriage as a Rat Race: Noisy Pre-Marital Investments with Assortative Matching," SIRE Discussion Papers 2011-65, Scottish Institute for Research in Economics (SIRE).
- Ed Hopkins (University of Edinburgh) and V. Bhaskar (University College London), 2011. "Marriage as a Rat Race: Noisy Pre-Marital Investments with Assortative Matching," ESE Discussion Papers 210, Edinburgh School of Economics, University of Edinburgh.
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