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Many-to-Many Matching Design and Price Discrimination

  • Alessandro Pavan

    (Northwestern University)

  • Renato Gomes

    (Toulouse School of Economics)

This paper studies second-degree price discrimination in matching markets, that is, in markets where the product sold by the monopolist is access to other agents. In order to investigate the optimality of a large variety of pricing strategies, we allow for any many-to-many matching rule that satisfies a weak reciprocity condition. In this context, we derive necessary and sufficient conditions for the welfare and profit-maximizing mechanisms to employ a single network or to offer a menu of non-exclusive networks (multi-homing). We characterize the matching schedules that arise under a wide range of preferences, and deliver testable comparative statics results that relate the pricing strategies of a profit-maximizing platform to conditions on demand and the distribution of match qualities. Our analysis sheds light on the distortions brought by the private provision of broadcasting, health insurance and job matching services.

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Paper provided by Society for Economic Dynamics in its series 2011 Meeting Papers with number 1212.

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Date of creation: 2011
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Handle: RePEc:red:sed011:1212
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  1. Shimer, R. & Smith, L., 1997. "Assortative Matching and Search," Working papers 97-2a, Massachusetts Institute of Technology (MIT), Department of Economics.
  2. Jean-Charles Rochet & Jean Triole, 2002. "Platform competition in two sided markets," LSE Research Online Documents on Economics 24929, London School of Economics and Political Science, LSE Library.
  3. Raymond J. Deneckere & R. Preston McAfee, 1996. "Damaged Goods," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 5(2), pages 149-174, 06.
  4. Ettore Damiano & Hao Li, 2007. "Price discrimination and efficient matching," Economic Theory, Springer, vol. 30(2), pages 243-263, February.
  5. Jean-Charles Rochet & Jean Tirole, 2014. "Platform Competition in Two-Sided Markets," CPI Journal, Competition Policy International, vol. 10.
  6. Jan Eeckhout & Philipp Kircher, 2008. "Sorting and Decentralized Price Competition," PIER Working Paper Archive 08-020, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania.
  7. repec:rje:randje:v:37:y:2006:3:p:720-737 is not listed on IDEAS
  8. Bulow, Jeremy & Roberts, John, 1989. "The Simple Economics of Optimal Auctions," Journal of Political Economy, University of Chicago Press, vol. 97(5), pages 1060-90, October.
  9. Mussa, Michael & Rosen, Sherwin, 1978. "Monopoly and product quality," Journal of Economic Theory, Elsevier, vol. 18(2), pages 301-317, August.
  10. 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.
  11. repec:rje:randje:v:37:y:2006:3:p:645-667 is not listed on IDEAS
  12. Eric Maskin & John Riley, 1984. "Monopoly with Incomplete Information," RAND Journal of Economics, The RAND Corporation, vol. 15(2), pages 171-196, Summer.
  13. Lones Smith, 2006. "The Marriage Model with Search Frictions," Journal of Political Economy, University of Chicago Press, vol. 114(6), pages 1124-1146, December.
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