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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
Date of revision:
Handle: RePEc:red:sed011:1212
Contact details of provider: Postal: Society for Economic Dynamics Marina Azzimonti Department of Economics Stonybrook University 10 Nicolls Road Stonybrook NY 11790 USA
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  1. Jean-Charles Rochet & Jean Tirole, 2003. "Platform Competition in Two-Sided Markets," Journal of the European Economic Association, MIT Press, vol. 1(4), pages 990-1029, 06.
  2. Shimer, R. & Smith, L., 1997. "Assortative Matching and Search," Working papers 97-2b, Massachusetts Institute of Technology (MIT), Department of Economics.
  3. 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.
  4. Hoppe, Heidrun C. & Moldovanu, Benny & Sela, Aner, 2006. "The Theory of Assortative Matching Based on Costly Signals," CEPR Discussion Papers 5543, C.E.P.R. Discussion Papers.
  5. Lones Smith, 2006. "The Marriage Model with Search Frictions," Journal of Political Economy, University of Chicago Press, vol. 114(6), pages 1124-1146, December.
  6. repec:rje:randje:v:37:y:2006:3:p:645-667 is not listed on IDEAS
  7. Raymond J. Deneckere & R. Preston McAfee, 1996. "Damaged Goods," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 5(2), pages 149-174, 06.
  8. Mussa, Michael & Rosen, Sherwin, 1978. "Monopoly and product quality," Journal of Economic Theory, Elsevier, vol. 18(2), pages 301-317, August.
  9. Jan Eeckhout & Philipp Kircher, 2010. "Sorting and Decentralized Price Competition," Econometrica, Econometric Society, vol. 78(2), pages 539-574, 03.
  10. repec:rje:randje:v:37:y:2006:3:p:720-737 is not listed on IDEAS
  11. Damiano, Ettore & Li, Hao, 2005. "Price Discrimination and Efficient Matching," working papers damiano-05-03-21-12-21-58, Vancouver School of Economics, revised 22 Mar 2005.
  12. Eric Maskin & John Riley, 1984. "Monopoly with Incomplete Information," RAND Journal of Economics, The RAND Corporation, vol. 15(2), pages 171-196, Summer.
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