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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. Manolis Galenianos & Philipp Kircher, 2005. "Directed Search with Multiple Job Applications," PIER Working Paper Archive 05-022, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania.
  2. Lester, Benjamin & Visschers, Ludo & Wolthoff, Ronald, 2014. "Meeting technologies and optimal trading mechanisms in competitive search markets," Working Papers 14-15, Federal Reserve Bank of Philadelphia.
  3. Shouyong Shi, 2006. "Wage Differentials, Discrimination and Efficiency," Working Papers tecipa-189, University of Toronto, Department of Economics.
  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, 2009. "Adverse Selection in Competitive Search Equilibrium," NBER Working Papers 14915, National Bureau of Economic Research, Inc.
  6. Guido Menzio & Shouyong Shi, 2008. "Efficient Search on the Job and the Business Cycle," PIER Working Paper Archive 08-029, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania.
  7. Lester, Benjamin & Visschers, Ludo & Wolthoff, Ronald, 0. "Competing with asking prices," Theoretical Economics, Econometric Society.
  8. Michael Peters, 1997. "A Competitive Distribution of Auctions," Review of Economic Studies, Oxford University Press, vol. 64(1), pages 97-123.
  9. Athanasios Geromichalos, 2010. "Directed Search and Optimal Production," Working Papers 1016, University of California, Davis, Department of Economics.
  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, E.R., 1995. "Competitive Search Equilibrium," Memorandum 37/1995, Oslo University, Department of Economics.
  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, 2001. "The Assignment of Workers to Jobs In an Economy with Coordination Frictions," NBER Working Papers 8501, National Bureau of Economic Research, Inc.
  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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