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Price discrimination and efficient matching

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  • Ettore Damiano

    ()

  • Hao Li

    ()

Abstract

This paper considers the problem of a monopoly matchmaker that uses a schedule of entrance fees to sort different types of agents on the two sides of a matching market into exclusive meeting places, where agents randomly form pairwise matches. We make the standard assumption that the match value function exhibits complementarities, so that matching types at equal percentiles maximizes total match value and is efficient. We provide necessary and sufficient conditions for the revenue-maximizing sorting to be efficient. These conditions require the match value function, modified to incorporate the incentive cost of eliciting private type information, to exhibit complementarities along the efficient path of matching types at equal percentiles.
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Suggested Citation

  • Ettore Damiano & Hao Li, 2007. "Price discrimination and efficient matching," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 30(2), pages 243-263, February.
  • Handle: RePEc:spr:joecth:v:30:y:2007:i:2:p:243-263
    DOI: 10.1007/s00199-005-0058-2
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    File URL: http://hdl.handle.net/10.1007/s00199-005-0058-2
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    References listed on IDEAS

    as
    1. Bloch, Francis & Ryder, Harl, 2000. "Two-Sided Search, Marriages, and Matchmakers," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 41(1), pages 93-115, February.
    2. Lones Smith, 2006. "The Marriage Model with Search Frictions," Journal of Political Economy, University of Chicago Press, vol. 114(6), pages 1124-1146, December.
    3. Ettore Damiano & Hao Li, 2004. "Unraveling of Dynamic Sorting," Econometric Society 2004 Latin American Meetings 72, Econometric Society.
    4. Ettore Damiano & Hao Li & Wing Suen, 2005. "Unravelling of Dynamic Sorting," Review of Economic Studies, Oxford University Press, vol. 72(4), pages 1057-1076.
    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. Roman Inderst, 2001. "Screening in a Matching Market," Review of Economic Studies, Oxford University Press, vol. 68(4), pages 849-868.
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