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Coarse Matching and Price Discrimination

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  • moldovanu, benny
  • Hoppe-Wewetzer, Heidrun C.
  • Ozdenoren, Emre

Abstract

We study two-sided markets with heterogeneous, privately informed agents who gain from being matched with better partners from the other side. Agents are matched through an intermediary. Our main results quantify the relative attractiveness of a coarse matching scheme consisting of two classes of agents on each side, in terms of matching surplus (output), the intermediary's revenue, and the agents' welfare (defined by the total surplus minus payments to the intermediary). In a nutshell, our philosophy is that, if the worst-case scenario under coarse matching is not too bad relative to what is achievable by more complex, finer schemes, a coarse matching scheme will turn out to be preferable once the various transaction costs associated with fine schemes are taken into account. Similarly, coarse matching schemes can be significantly better than completely random matching, requiring only a minimal amount of information.

Suggested Citation

  • moldovanu, benny & Hoppe-Wewetzer, Heidrun C. & Ozdenoren, Emre, 2007. "Coarse Matching and Price Discrimination," CEPR Discussion Papers 6041, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:6041
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    References listed on IDEAS

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    More about this item

    Keywords

    Matching; Nonlinear pricing;

    JEL classification:

    • C78 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Bargaining Theory; Matching Theory
    • D42 - Microeconomics - - Market Structure, Pricing, and Design - - - Monopoly
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • L15 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Information and Product Quality

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