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Pricing and Matching with Frictions

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  • Kenneth Burdett
  • Shouyong Shi
  • Randall Wright

Abstract

Suppose that n buyers each want one unit and m sellers each have one or more units of a good. Sellers post prices, and then buyers choose sellers. In symmetric equilibrium, similar sellers all post one price, and buyers randomize. Hence, more or fewer buyers may arrive than a seller can accommodate. We call this frictions. We solve for prices and the endogenous matching function for finite n and m and consider the limit as n and m grow. The matching function displays decreasing returns but converges to constant returns. We argue that the standard matching function in the literature is misspecified and discuss implications for the Beveridge curve.

Suggested Citation

  • Kenneth Burdett & Shouyong Shi & Randall Wright, 2001. "Pricing and Matching with Frictions," Journal of Political Economy, University of Chicago Press, vol. 109(5), pages 1060-1085, October.
    • Handle: RePEc:ucp:jpolec:v:109:y:2001:i:5:p:1060-1085
    DOI: 10.1086/322835
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    References listed on IDEAS

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