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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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File URL: http://econtheory.org/ojs/index.php/te/article/viewFile/20130535/8787/277
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Article provided by Econometric Society in its journal Theoretical Economics.

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

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Handle: RePEc:the:publsh:1189
Contact details of provider: Web page: http://econtheory.org

References listed on IDEAS
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  1. Jeremy Bulow & Jonathan Levin, 2005. "Matching and Price Competition," NBER Working Papers 11506, National Bureau of Economic Research, Inc.
  2. Harold L. Cole & George J. Mailath & Andrew Postlewaite, . "Efficient Non-Contractible Investments in Large Economies," Penn CARESS Working Papers e9e0aca257b20d3bb6bb4a52a, Penn Economics Department.
  3. Harold L. Cole & George J. Mailath & Andrew Postlewaite, . "Efficient Non-Contractible Investments," Penn CARESS Working Papers 08d6793d32cab8f6e1f46dac0, Penn Economics Department.
  4. Michael Ostrovsky & Michael Schwarz, 2010. "Information Disclosure and Unraveling in Matching Markets," American Economic Journal: Microeconomics, American Economic Association, vol. 2(2), pages 34-63, May.
  5. Masters, Adrian, 2011. "Commitment, advertising and efficiency of two-sided investment in competitive search equilibrium," Journal of Economic Dynamics and Control, Elsevier, vol. 35(7), pages 1017-1031, July.
  6. 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.
  7. Rege, Mari, 2008. "Why do people care about social status?," Journal of Economic Behavior & Organization, Elsevier, vol. 66(2), pages 233-242, May.
  8. repec:bla:restud:v:76:y:2009:i:1:p:253-281 is not listed on IDEAS
  9. Sean Nicholson, 2003. "Barriers to Entering Medical Specialties," NBER Working Papers 9649, National Bureau of Economic Research, Inc.
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