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Search Frictions, Competing Mechanisms and Optimal Market Segmentation

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  • Gautier, Pieter
  • Cai, Xiaoming
  • Wolthoff, Ronald

Abstract

In a market in which sellers compete for heterogeneous buyers by posting mechanisms, we analyze how the properties of the meeting technology affect the allocation of buyers to sellers. We show that a separate submarket for each type of buyer is the efficient outcome if and only if meetings are bilateral. In contrast, a single market with all agents is optimal if and only if the meeting technology satisfies a novel condition, which we call “joint concavity.†Both outcomes can be decentralized by sellers posting auctions combined with a fee that is paid by (or to) all buyers with whom the seller meets. Finally, we compare joint concavity to two other properties of meeting technologies, invariance and non rivalry, and explain the differences.

Suggested Citation

  • Gautier, Pieter & Cai, Xiaoming & Wolthoff, Ronald, 2016. "Search Frictions, Competing Mechanisms and Optimal Market Segmentation," CEPR Discussion Papers 11310, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:11310
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    Cited by:

    1. Xiaoming Cai & Pieter Gautier & Ronald Wolthoff, 2025. "Search, Screening, and Sorting," American Economic Journal: Macroeconomics, American Economic Association, vol. 17(3), pages 205-236, July.
    2. Cai, Xiaoming & Gautier, Pieter & Wolthoff, Ronald, 2025. "Spatial search," Journal of Economic Theory, Elsevier, vol. 224(C).
    3. Gomis-Porqueras Pedro & Julien Benoît & Wang Liang, 2018. "Competitive Search with Ex-post Opportunism," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 18(1), pages 1-17, January.
    4. Auster, Sarah & Gottardi, Piero, 2019. "Competing mechanisms in markets for lemons," Theoretical Economics, Econometric Society, vol. 14(3), July.
    5. Sarah Auster & Piero Gottardi & Ronald Wolthoff, 2025. "Simultaneous Search and Adverse Selection," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 92(6), pages 3541-3573.
    6. Mangin, Sephorah, 2017. "A theory of production, matching, and distribution," Journal of Economic Theory, Elsevier, vol. 172(C), pages 376-409.
    7. Kircher, Philipp & Wright, Randall & Julien, Benoit & Guerrieri, Veronica, 2017. "Directed Search: A Guided Tour," CEPR Discussion Papers 12315, C.E.P.R. Discussion Papers.
    8. Julien, Benoît & Roger, Guillaume, 2018. "Bidding for incentive contracts," Journal of Mathematical Economics, Elsevier, vol. 79(C), pages 95-105.
    9. Xiaoming Cai & Pieter Gautier & Ronald Wolthoff, 2023. "Meetings And Mechanisms," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 64(1), pages 155-185, February.
    10. Mangin, Sephorah & Julien, Benoît, 2021. "Efficiency in search and matching models: A generalized Hosios condition," Journal of Economic Theory, Elsevier, vol. 193(C).
    11. Shi, Shouyong, 2023. "Sequentially mixed search and equilibrium price dispersion," Journal of Economic Theory, Elsevier, vol. 213(C).
    12. Davoodalhosseini, Seyed Mohammadreza, 2019. "Constrained efficiency with adverse selection and directed search," Journal of Economic Theory, Elsevier, vol. 183(C), pages 568-593.
    13. He, Chuan & Mau, Karsten & Xu, Mingzhi, 2021. "Trade Shocks and Firms Hiring Decisions: Evidence from Vacancy Postings of Chinese Firms in the Trade War," Labour Economics, Elsevier, vol. 71(C).
    14. Albrecht, James & Cai, Xiaoming & Gautier, Pieter & Vroman, Susan, 2020. "Multiple applications, competing mechanisms, and market power," Journal of Economic Theory, Elsevier, vol. 190(C).
    15. Mekonnen, Teddy, 0. "How to segment a search market: information design and directed search," Theoretical Economics, Econometric Society.

    More about this item

    Keywords

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    JEL classification:

    • C78 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Bargaining Theory; Matching Theory
    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness

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