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"Pricing and Investments in Matching Markets",Second Version

  • George J. Mailath


    (Department of Economics, University of Pennsylvania)

  • Andrew Postlewaite


    (Department of Economics, University of Pennsylvania)

  • Larry Samuelson


    (Department of Economics, Yale University)

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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Paper provided by Penn Institute for Economic Research, Department of Economics, University of Pennsylvania in its series PIER Working Paper Archive with number 10-037.

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Length: 68 pages
Date of creation: 26 Jan 2010
Date of revision: 30 Nov 2010
Handle: RePEc:pen:papers:10-037
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