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Inclusive versus Exclusive Markets: Search Frictions and Competing Mechanisms

Author

Listed:
  • Xiaoming Cai
  • Pieter Gautier
  • Ronald Wolthoff

Abstract

In a market in which sellers compete for heterogeneous buyers by posting mechanisms, we analyze how the properties of the meeting technology affect the allocation of buyers to sellers. We show that exclusive markets (i.e. a separate submarket for each type of buyer) are the efficient outcome if and only if meetings are bilateral. In contrast, an inclusive market (i.e. a single market in which all buyer types pool) is optimal if and only if the meeting technology satisfies a novel condition, which we call "love for variety." Both outcomes can be decentralized by sellers posting auctions combined with a fee that is paid by (or to) all buyers with whom the seller meets. Finally, we compare love for variety to two other properties of meeting technologies, invariance and non-rivalry, and explain the differences.

Suggested Citation

  • Xiaoming Cai & Pieter Gautier & Ronald Wolthoff, 2015. "Inclusive versus Exclusive Markets: Search Frictions and Competing Mechanisms," Working Papers tecipa-545, University of Toronto, Department of Economics.
  • Handle: RePEc:tor:tecipa:tecipa-545
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    References listed on IDEAS

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    Cited by:

    1. Piero Gottardi & Sarah Auster, 2016. "Competing Mechanisms in Markets for Lemons," 2016 Meeting Papers 264, Society for Economic Dynamics.

    More about this item

    Keywords

    search frictions; matching function; meeting technology; competing mechanisms; heterogeneity;

    JEL classification:

    • C78 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Bargaining Theory; Matching Theory
    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness

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