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Pricing and Investments in Matching Markets

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://cowles.econ.yale.edu/P/cd/d18a/d1810.pdf
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Paper provided by Cowles Foundation for Research in Economics, Yale University in its series Cowles Foundation Discussion Papers with number 1810.

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Length: 68 pages
Date of creation: Jul 2011
Date of revision:
Publication status: Published in Theoretical Economics (May 2013), 8(2): 535-590
Handle: RePEc:cwl:cwldpp:1810
Note: CFP 1408
Contact details of provider: Postal: Yale University, Box 208281, New Haven, CT 06520-8281 USA
Phone: (203) 432-3702
Fax: (203) 432-6167
Web page: http://cowles.econ.yale.edu/

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Order Information: Postal: Cowles Foundation, Yale University, Box 208281, New Haven, CT 06520-8281 USA

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  1. Bulow, Jeremy I. & Levin, Jonathan, 2003. "Matching and Price Competition," Research Papers 1818, Stanford University, Graduate School of Business.
  2. Harold L. Cole & George J. Mailath & Andrew Postlewaite, . "Efficient Non-Contractible Investments in Large Economies," CARESS Working Papres 00-05, University of Pennsylvania Center for Analytic Research and Economics in the Social Sciences.
  3. Heidrun C. Hoppe & Benny Moldovanu & Aner Sela, 2009. "The Theory of Assortative Matching Based on Costly Signals," Review of Economic Studies, Oxford University Press, vol. 76(1), pages 253-281.
  4. Adrian Masters, 2008. "Commitment, advertising and efficiency of two-sided investment in competitive search equilibrium," 2008 Meeting Papers 260, Society for Economic Dynamics.
  5. 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.
  6. Harold L. Cole & George J. Mailath & Andrew Postlewaite, . "Efficient Non-Contractible Investments," Penn CARESS Working Papers 08d6793d32cab8f6e1f46dac0, Penn Economics Department.
  7. repec:bla:restud:v:76:y:2009:i:1:p:253-281 is not listed on IDEAS
  8. Rege, Mari, 2008. "Why do people care about social status?," Journal of Economic Behavior & Organization, Elsevier, vol. 66(2), pages 233-242, May.
  9. Sean Nicholson, 2003. "Barriers to Entering Medical Specialties," NBER Working Papers 9649, National Bureau of Economic Research, Inc.
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