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Inclusive versus Exclusive Markets: Search Frictions and Competing Mechanisms

Listed author(s):
  • Xiaoming Cai
  • Pieter Gautier
  • Ronald Wolthoff

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.

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Paper provided by University of Toronto, Department of Economics in its series Working Papers with number tecipa-545.

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Length: Unknown pages
Date of creation: 04 Aug 2015
Handle: RePEc:tor:tecipa:tecipa-545
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  1. Galenianos, Manolis & Kircher, Philipp, 2009. "Directed search with multiple job applications," Journal of Economic Theory, Elsevier, vol. 144(2), pages 445-471, March.
  2. Lester, Benjamin & Visschers, Ludo & Wolthoff, Ronald, 2015. "Meeting technologies and optimal trading mechanisms in competitive search markets," Journal of Economic Theory, Elsevier, vol. 155(C), pages 1-15.
  3. Shi, Shouyong, 2006. "Wage differentials, discrimination and efficiency," European Economic Review, Elsevier, vol. 50(4), pages 849-875, May.
  4. Kenneth Burdett & Shouyong Shi & Randall Wright, 2001. "Pricing and Matching with Frictions," Journal of Political Economy, University of Chicago Press, vol. 109(5), pages 1060-1085, October.
  5. Veronica Guerrieri & Robert Shimer & Randall Wright, 2010. "Adverse Selection in Competitive Search Equilibrium," Econometrica, Econometric Society, vol. 78(6), pages 1823-1862, November.
  6. Guido Menzio & Shouyong Shi, 2011. "Efficient Search on the Job and the Business Cycle," Journal of Political Economy, University of Chicago Press, vol. 119(3), pages 468-510.
  7. Lester, Benjamin & Visschers, Ludo & Wolthoff, Ronald, 2017. "Competing with asking prices," Theoretical Economics, Econometric Society, vol. 12(2), May.
  8. Michael Peters, 1997. "A Competitive Distribution of Auctions," Review of Economic Studies, Oxford University Press, vol. 64(1), pages 97-123.
  9. Geromichalos, Athanasios, 2012. "Directed search and optimal production," Journal of Economic Theory, Elsevier, vol. 147(6), pages 2303-2331.
  10. Philipp Kircher, 2009. "Efficiency of Simultaneous Search," Journal of Political Economy, University of Chicago Press, vol. 117(5), pages 861-913, October.
  11. McAfee, R Preston, 1993. "Mechanism Design by Competing Sellers," Econometrica, Econometric Society, vol. 61(6), pages 1281-1312, November.
  12. Gautier, Pieter A. & Wolthoff, Ronald P., 2009. "Simultaneous search with heterogeneous firms and ex post competition," Labour Economics, Elsevier, vol. 16(3), pages 311-319, June.
  13. Peters, Michael & Severinov, Sergei, 1997. "Competition among Sellers Who Offer Auctions Instead of Prices," Journal of Economic Theory, Elsevier, vol. 75(1), pages 141-179, July.
  14. Ronald Wolthoff & Lodewijk Visschers & Benjamin Lester, 2012. "Asking Prices and Inspection Goods," 2012 Meeting Papers 792, Society for Economic Dynamics.
  15. Ronald Wolthoff, 2014. "Applications and Interviews: Firms' Recruiting Decisions in a Frictional Labor Market," Working Papers tecipa-522, University of Toronto, Department of Economics.
  16. Moen, Espen R, 1997. "Competitive Search Equilibrium," Journal of Political Economy, University of Chicago Press, vol. 105(2), pages 385-411, April.
  17. Pieter A. Gautier & Coen N. Teulings & Aico Van Vuuren, 2010. "On-the-Job Search, Mismatch and Efficiency ," Review of Economic Studies, Oxford University Press, vol. 77(1), pages 245-272.
  18. Gautier, Pieter A. & Moraga-González, José L. & Wolthoff, Ronald P., 2016. "Search costs and efficiency: Do unemployed workers search enough?," European Economic Review, Elsevier, vol. 84(C), pages 123-139.
  19. Kiyotaki, Nobuhiro & Wright, Randall, 1993. "A Search-Theoretic Approach to Monetary Economics," American Economic Review, American Economic Association, vol. 83(1), pages 63-77, March.
  20. McAfee, R Preston & McMillan, John, 1987. "Auctions and Bidding," Journal of Economic Literature, American Economic Association, vol. 25(2), pages 699-738, June.
  21. Robert Shimer, 2005. "The Assignment of Workers to Jobs in an Economy with Coordination Frictions," Journal of Political Economy, University of Chicago Press, vol. 113(5), pages 996-1025, October.
  22. Epstein, Larry G. & Peters, Michael, 1999. "A Revelation Principle for Competing Mechanisms," Journal of Economic Theory, Elsevier, vol. 88(1), pages 119-160, September.
  23. Gerard R. Butters, 1977. "Equilibrium Distributions of Sales and Advertising Prices," Review of Economic Studies, Oxford University Press, vol. 44(3), pages 465-491.
  24. Ronald Wolthoff & Benjamin Lester, 2012. "Interviews and the Assignment of Workers to Jobs," 2012 Meeting Papers 631, Society for Economic Dynamics.
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