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Cooperation, competition, and welfare in a matching market

Author

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  • Bester, Helmut
  • Sákovics, József

Abstract

We investigate the welfare effect of increasing competition in an anonymous two-sided matching market, where matched pairs play an infinitely repeated Prisoner's Dilemma. Higher matching efficiency is usually considered detrimental as it creates stronger incentives for defection. We point out, however, that a reduction in matching frictions also increases welfare because more agents find themselves in a cooperative relationship. We characterize the conditions for which increasing competition increases overall welfare. In particular, this is always the case when the incentives for defection are high.

Suggested Citation

  • Bester, Helmut & Sákovics, József, 2022. "Cooperation, competition, and welfare in a matching market," Discussion Papers 2022/6, Free University Berlin, School of Business & Economics.
    • Handle: RePEc:zbw:fubsbe:20226
    DOI: 10.17169/refubium-35308
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    1. Paul R. Milgrom & Douglass C. North & Barry R. Weingast*, 1990. "The Role Of Institutions In The Revival Of Trade: The Law Merchant, Private Judges, And The Champagne Fairs," Economics and Politics, Wiley Blackwell, vol. 2(1), pages 1-23, March.
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    More about this item

    Keywords

    Cooperation; Prisoner's Dilemma; Competition; Welfare; Matching; Trust Building;
    All these keywords.

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary Games
    • C78 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Bargaining Theory; Matching Theory
    • D6 - Microeconomics - - Welfare Economics

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