Abstract

http://ssrn.com/abstract=1892119
 
 

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Pricing and Investments in Matching Markets


George J. Mailath


University of Pennsylvania - Department of Economics

Andrew Postlewaite


University of Pennsylvania - Department of Economics

Larry Samuelson


Yale University

March 7, 2011

Cowles Foundation Discussion Paper No. 1810

Abstract:     
Different markets are cleared by different types of prices -- seller-specific prices that are uniform across buyers in some markets, and personalized prices tailored to the buyer in others. We examine a setting in which buyers and sellers make investments before matching in a competitive market. We introduce the notion of premuneration values -- the values to the transacting agents prior to any transfers -- created by a buyer-seller match. Personalized price equilibrium outcomes are independent of premuneration values and exhibit inefficiencies only in the event of "coordination failures," while uniform-price equilibria depend on premuneration values and in general feature inefficient investments even without coordination failures. There is thus a trade-off between the costs of personalizing prices and the inefficient investments under uniform prices. We characterize the premuneration values under which uniform-price equilibria similarly exhibit inefficiencies only in the event of coordination failures.

Number of Pages in PDF File: 69

Keywords: Directed search, Matching, Premuneration value, Prematch investments, Search

JEL Classification: C78, D40, D41, D50, D83

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Date posted: July 22, 2011  

Suggested Citation

Mailath, George J. and Postlewaite, Andrew and Samuelson, Larry, Pricing and Investments in Matching Markets (March 7, 2011). Cowles Foundation Discussion Paper No. 1810. Available at SSRN: http://ssrn.com/abstract=1892119

Contact Information

George J. Mailath
University of Pennsylvania - Department of Economics ( email )
3718 Locust Walk
Philadelphia, PA 19104
United States
215-898-7749 (Phone)
215-573-2057 (Fax)
HOME PAGE: http://www.ssc.upenn.edu/~gmailath
Andrew Postlewaite
University of Pennsylvania - Department of Economics ( email )
3718 Locust Walk
Philadelphia, PA 19104
United States
215-898-7350 (Phone)
215-573-2057 (Fax)
HOME PAGE: http://www.econ.upenn.edu/~apostlew
Larry Samuelson (Contact Author)
Yale University ( email )
30 Hillhouse Avenue
New Haven, CT 06520-8281
United States
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