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Assignment Games with Externalities And Matching-Based Competition

  • Bo Chen


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    We develop a model of assignment games with pairwise-identity-dependent externalities. A concept of conjectural equilibrium is proposed, and the universal conjecture is shown to be the necessary and sufficient condition for the general existence of equilibrium. We then apply the solution concept to a matching-based Cournot model in which the unit production cost of a firm depends on both the technology of the firm and the human capital of the manager hired, and show that if technology and human capital are complementary, the positive assortative matching (PAM) is a stable matching under rational expectations, or even if firm technology and human capital are substitutable yet the substitutive effect is dominated by the marginal effects of technology and human capital, the PAM is still a rational stable matching.However, if the substitutive effect on the unit production cost is sufficiently strong or the market demand is sufficiently high, the negative assortative matching is a rational stable matching.

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    Paper provided by University of Bonn, Germany in its series Bonn Econ Discussion Papers with number bgse08_2013.

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    Length: 40
    Date of creation: Oct 2013
    Date of revision:
    Handle: RePEc:bon:bonedp:bgse08_2013
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    Bonn Graduate School of Economics, University of Bonn, Adenauerallee 24 - 26, 53113 Bonn, Germany

    Fax: +49 228 73 6884
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    1. Echenique, Federico & Yenmez, M. Bumin, 2007. "A solution to matching with preferences over colleagues," Games and Economic Behavior, Elsevier, vol. 59(1), pages 46-71, April.
    2. Ayse Mumcu & Ismail Saglam, 2008. "Characterizing Stable One-to-One Matchings under Interdependent Preferences," Working Papers 0806, TOBB University of Economics and Technology, Department of Economics.
    3. Ismail Saglam & Ayse Mumcu, 2007. "The core of a housing market with externalities," Economics Bulletin, AccessEcon, vol. 3(57), pages 1-5.
    4. Alcalde, Jose & Revilla, Pablo, 2004. "Researching with whom? Stability and manipulation," Journal of Mathematical Economics, Elsevier, vol. 40(8), pages 869-887, December.
    5. Sasaki, Hiroo & Toda, Manabu, 1996. "Two-Sided Matching Problems with Externalities," Journal of Economic Theory, Elsevier, vol. 70(1), pages 93-108, July.
    6. Mariagiovanna Baccara & Ayse Imrohoroglu & Alistair Wilson & Leeat Yariv, 2009. "A Field Study on Matching with Network Externalities," Working Papers 09-13, New York University, Leonard N. Stern School of Business, Department of Economics.
    7. Patrick Legros & Andrew F. Newman, 2003. "Beauty is a Beast, Frog is a Prince: Assortative Matching with Nontransferabilities," Economics Working Papers 0030, Institute for Advanced Study, School of Social Science.
    8. Shapley, Lloyd S & Shubik, Martin, 1969. "On the Core of an Economic System with Externalities," American Economic Review, American Economic Association, vol. 59(4), pages 678-84, Part I Se.
    9. Dutta, Bhaskar & Masso, Jordi, 1997. "Stability of Matchings When Individuals Have Preferences over Colleagues," Journal of Economic Theory, Elsevier, vol. 75(2), pages 464-475, August.
    10. James A. Brander & Barbara J. Spencer, 1984. "Export Subsidies and International Market Share Rivalry," NBER Working Papers 1464, National Bureau of Economic Research, Inc.
    11. Gudmundsson, Jens & Habis, Helga, 2015. "Assignment Games with Externalities," Corvinus Economics Working Papers (CEWP) 2015/16, Corvinus University of Budapest.
    12. Philippe Jehiel & Benny Moldovanu, 1996. "Strategic Nonparticipation," RAND Journal of Economics, The RAND Corporation, vol. 27(1), pages 84-98, Spring.
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