Heterogeneity as a coordination device
AbstractA model of directed search with a finite number of buyers and sellers is considered, where sellers compete in direct mechanisms. Buyer heterogeneity and Nash equilibrium results in perfect sorting. The restriction to complementary inputs, that the match value function Q is supermodular, in addition coordinates the sellers’ strategies. In that case, equilibrium implements positive assortative matching, which is efficient and consistent with the stable (cooperative equilibrium) outcome. This provides a non-cooperative and decentralized solution for the Assignment Game. Conversely, if buyers are identical, no such coordination is possible, and there is a continuum of equilibria, one of which exhibits price posting, another yields competition in auctions.
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Bibliographic InfoPaper provided by Department of Economics and Business, Universitat Pompeu Fabra in its series Economics Working Papers with number 510.
Date of creation: Feb 2000
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Matching; assignment game; directed search; supermodularity; truthful equilibrium;
Find related papers by JEL classification:
- C7 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory
- D4 - Microeconomics - - Market Structure and Pricing
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