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Many-to-Many Matching Design and Price Discrimination

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  • Alessandro Pavan

    (Northwestern University)

  • Renato Gomes

    (Toulouse School of Economics)

Abstract

This paper studies second-degree price discrimination in matching markets, that is, in markets where the product sold by the monopolist is access to other agents. In order to investigate the optimality of a large variety of pricing strategies, we allow for any many-to-many matching rule that satisfies a weak reciprocity condition. In this context, we derive necessary and sufficient conditions for the welfare and profit-maximizing mechanisms to employ a single network or to offer a menu of non-exclusive networks (multi-homing). We characterize the matching schedules that arise under a wide range of preferences, and deliver testable comparative statics results that relate the pricing strategies of a profit-maximizing platform to conditions on demand and the distribution of match qualities. Our analysis sheds light on the distortions brought by the private provision of broadcasting, health insurance and job matching services.

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Bibliographic Info

Paper provided by Society for Economic Dynamics in its series 2011 Meeting Papers with number 1212.

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Date of creation: 2011
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Handle: RePEc:red:sed011:1212

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  1. Hoppe, Heidrun C. & Moldovanu, Benny & Sela, Aner, 2005. "The Theory of Assortative Matching Based on Costly Signals," Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems 85, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.
  2. Mussa, Michael & Rosen, Sherwin, 1978. "Monopoly and product quality," Journal of Economic Theory, Elsevier, vol. 18(2), pages 301-317, August.
  3. Rochet, Jean-Charles & Tirole, Jean, 2003. "Platform Competition in Two-Sided Markets," IDEI Working Papers 152, Institut d'Économie Industrielle (IDEI), Toulouse.
  4. Jan Eeckhout & Philipp Kircher, 2010. "Sorting and Decentralized Price Competition," Econometrica, Econometric Society, vol. 78(2), pages 539-574, 03.
  5. Eric Maskin & John Riley, 1984. "Monopoly with Incomplete Information," RAND Journal of Economics, The RAND Corporation, vol. 15(2), pages 171-196, Summer.
  6. Deneckere, R. & McAfee, R.P., 1995. "Damaged Goods," Working papers 9508, Wisconsin Madison - Social Systems.
  7. Damiano, Ettore & Li, Hao, 2005. "Price Discrimination and Efficient Matching," Microeconomics.ca working papers damiano-05-03-21-12-21-58, Vancouver School of Economics, revised 22 Mar 2005.
  8. repec:rje:randje:v:37:y:2006:3:p:645-667 is not listed on IDEAS
  9. Shimer, R. & Smith, L., 1997. "Assortative Matching and Search," Working papers 97-2a, Massachusetts Institute of Technology (MIT), Department of Economics.
  10. repec:rje:randje:v:37:y:2006:3:p:720-737 is not listed on IDEAS
  11. Lones Smith, 2006. "The Marriage Model with Search Frictions," Journal of Political Economy, University of Chicago Press, vol. 114(6), pages 1124-1146, December.
  12. Bulow, Jeremy & Roberts, John, 1989. "The Simple Economics of Optimal Auctions," Journal of Political Economy, University of Chicago Press, vol. 97(5), pages 1060-90, October.
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