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Pricing and investments in matching markets

  • Mailath, George J.


    (Department of Economics, University of Pennsylvania)

  • Samuelson, Larry


    (Department of Economics, Yale University)

  • Postlewaite, Andrew


    (Department of Economics, University of Pennsylvania)

Different 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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Article provided by Econometric Society in its journal Theoretical Economics.

Volume (Year): 8 (2013)
Issue (Month): 2 (May)

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Handle: RePEc:the:publsh:1189
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  1. Harold L. Cole & George J. Mailath & Andrew Postlewaite, 2000. "Efficient Non-Contractible Investments in Large Economies," CARESS Working Papres eff-inv-large, University of Pennsylvania Center for Analytic Research and Economics in the Social Sciences.
  2. Harold L. Cole & George J. Mailath & Andrew Postlewaite, . ""Efficient Non-Contractible Investments''," CARESS Working Papres 98-13, University of Pennsylvania Center for Analytic Research and Economics in the Social Sciences.
  3. 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.
  4. Sean Nicholson, 2003. "Barriers to Entering Medical Specialties," NBER Working Papers 9649, National Bureau of Economic Research, Inc.
  5. Jonathan Levin & Jeremy Bulow, 2004. "Matching and Price Competition," Econometric Society 2004 North American Winter Meetings 350, Econometric Society.
  6. Rege, Mari, 2008. "Why do people care about social status?," Journal of Economic Behavior & Organization, Elsevier, vol. 66(2), pages 233-242, May.
  7. Heidrun C. Hoppe & Benny Moldovanu & Aner Sela, 2009. "The Theory of Assortative Matching Based on Costly Signals," Review of Economic Studies, Oxford University Press, vol. 76(1), pages 253-281.
  8. Ostrovsky, Michael & Schwarz, Michael, 2007. "Information Disclosure and Unraveling in Matching Markets," Research Papers 1965, Stanford University, Graduate School of Business.
  9. Adrian Masters, 2008. "Commitment, advertising and efficiency of two-sided investment in competitive search equilibrium," 2008 Meeting Papers 260, Society for Economic Dynamics.
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