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Cooperation, Competition, and Welfare in a Matching Market

Author

Listed:
  • Bester, Helmut

    (HU Berlin and FU Berlin)

  • Sákovics, József

    (University of the Balearic Islands and University of Edinburgh)

Abstract

We investigate the welfare effect of increasing competition in an anonymous two-sided matching market, where matched pairs play an infinitely repeated Prisoner’s Dilemma. Higher matching efficiency is usually considered detrimental as it creates stronger incentives for defection. We point out, however, that a reduction in matching frictions also increases welfare because more agents find themselves in a cooperative relationship. We characterize the conditions for which increasing competition increases overall welfare. In particular, this is always the case when the incentives for defection are high.

Suggested Citation

  • Bester, Helmut & Sákovics, József, 2022. "Cooperation, Competition, and Welfare in a Matching Market," Rationality and Competition Discussion Paper Series 332, CRC TRR 190 Rationality and Competition.
    • Handle: RePEc:rco:dpaper:332
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    References listed on IDEAS

    as
    1. Paul R. Milgrom & Douglass C. North & Barry R. Weingast*, 1990. "The Role Of Institutions In The Revival Of Trade: The Law Merchant, Private Judges, And The Champagne Fairs," Economics and Politics, Wiley Blackwell, vol. 2(1), pages 1-23, March.
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    More about this item

    Keywords

    cooperation; prisoner's dilemma; competition; welfare; matching; trust building;
    All these keywords.

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary Games
    • C78 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Bargaining Theory; Matching Theory

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