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Equilibrium and Matching under Price Controls

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  • P. Jean-Jacques Herings

    (Maastricht University, The Netherlands)

Abstract

The paper considers a one-to-one matching with contracts model in the presence of price controls. This set-up contains two important streams in the matching literature, those with and those without monetary transfers, as special cases and allows for intermediate cases with some restrictions on the monetary transfers that are feasible. An adjustment process that ends with a stable outcome is presented, thereby proving the existence of stable outcomes. The process contains the deferred acceptance algorithm of Gale and Shapley (1962) and the approximate auction mechanism of Demange, Gale, and Sotomayor (1986) as special cases. The paper presents a notion of competitive equilibrium, called Drèze equilibrium, for this class of models, an extension of the concept as developed by Drèze (1975) for economies with divisible commodities subject to price controls. It is shown that Drèze equilibrium allocations are equivalent to allocations induced by stable outcomes. One implication is the existence of Drèze equilibria. Another implication is the equivalence of a competitive equilibrium concept and the concept of stable outcomes that is valid with and without monetary transfers as well as when monetary transfers are limited.

Suggested Citation

  • P. Jean-Jacques Herings, 2015. "Equilibrium and Matching under Price Controls," Working Papers 2015.54, Fondazione Eni Enrico Mattei.
  • Handle: RePEc:fem:femwpa:2015.54
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    References listed on IDEAS

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    1. repec:eee:ecolet:v:155:y:2017:i:c:p:76-79 is not listed on IDEAS
    2. Andersson, Tommy & Svensson, Lars-Gunnar, 2016. "Strategy-proof house allocation with price restrictions," Journal of Economic Theory, Elsevier, vol. 163(C), pages 167-177.
    3. Gerard van der Laan & Zaifu Yang, 2016. "An ascending multi-item auction with financially constrained bidders," The Journal of Mechanism and Institution Design, Society for the Promotion of Mechanism and Institution Design, University of York, vol. 1(1), pages 109-149, December.
    4. Tam'as Fleiner & Zsuzsanna Jank'o & Akihisa Tamura & Alexander Teytelboym, 2015. "Trading Networks with Bilateral Contracts," Papers 1510.01210, arXiv.org, revised May 2018.
    5. Hatfield, John William & Plott, Charles R. & Tanaka, Tomomi, 2016. "Price controls, non-price quality competition, and the nonexistence of competitive equilibrium," Games and Economic Behavior, Elsevier, vol. 99(C), pages 134-163.
    6. Andersson, Tommy & Svensson, Lars-Gunnar, 2018. "Sequential rules for house allocation with price restrictions," Games and Economic Behavior, Elsevier, vol. 107(C), pages 41-59.
    7. Herings, P. Jean-Jacques & Zhou, Yu, 2019. "Competitive Equilibria in Matching Models with Financial Constraints," Research Memorandum 007, Maastricht University, Graduate School of Business and Economics (GSBE).
    8. Yu Zhou & Shigehiro Serizawa, 2019. "Minimum price equilibrium in the assignment market," ISER Discussion Paper 1047, Institute of Social and Economic Research, Osaka University.

    More about this item

    Keywords

    Price Controls; Matching; Stable Outcomes; Competitive Equilibrium; Drèze Equilibrium;

    JEL classification:

    • C71 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Cooperative Games
    • C78 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Bargaining Theory; Matching Theory
    • D45 - Microeconomics - - Market Structure, Pricing, and Design - - - Rationing; Licensing
    • D51 - Microeconomics - - General Equilibrium and Disequilibrium - - - Exchange and Production Economies

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