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Price Discrimination and Efficient Matching

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  • Damiano, Ettore
  • Li, Hao

Abstract

This paper considers the problem of a monopoly matchmaker that uses a schedule of entrance fees to sort different types of agents on the two sides of a matching market into exclusive meeting places, where agents randomly form pairwise matches. We make the standard assumption that the match value function exhibits complementarities, so that matching types at equal percentiles maximizes total match value and is efficient. We provide necessary and sufficient conditions for the revenue-maximizing sorting to be efficient. These conditions require the match value function, modified to incorporate the incentive cost of eliciting private type information, to exhibit complementarities along the efficient path of matching types at equal percentiles.

Suggested Citation

  • Damiano, Ettore & Li, Hao, 2005. "Price Discrimination and Efficient Matching," Microeconomics.ca working papers damiano-05-03-21-12-21-58, Vancouver School of Economics, revised 22 Mar 2005.
  • Handle: RePEc:ubc:pmicro:damiano-05-03-21-12-21-58
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    File URL: http://microeconomics.ca/ettore_damiano/D12.pdf
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    References listed on IDEAS

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    4. Lones Smith, 2006. "The Marriage Model with Search Frictions," Journal of Political Economy, University of Chicago Press, vol. 114(6), pages 1124-1146, December.
    5. Ettore Damiano & Hao Li & Wing Suen, 2005. "Unravelling of Dynamic Sorting," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 72(4), pages 1057-1076.
    6. Ken Burdett & Melvyn G. Coles, 1997. "Marriage and Class," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 112(1), pages 141-168.
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