Heterogeneity as a Coordination Device
Melvyn G. Coles
University of Essex - Department of Economics; Autonomous University of Barcelona; Institute for the Study of Labor (IZA)
University of Pennsylvania - Department of Economics
UPF Economics & Business Working Paper No. 510
A model of directed search with a finite number of buyers and sellers is considered, where sellers compete in direct mechanisms. Buyer heterogeneity and Nash equilibrium results in perfect sorting. The restriction to complementary inputs, that the match value function Q is supermodular, in addition coordinates the seller' strategies. In that case, equilibrium implements positive assortative matching, which is efficient and consistent with the stable (cooperative equilibrium) outcome. This provides a non-cooperative and decentralized solution for the Assignment Game. Conversely, if buyers are identical, no such coordination is possible, and there is a continuum of equilibria, one of which exhibits price posting, another yields competition in auctions.
Number of Pages in PDF File: 38
Keywords: Matching, assignment game, directed search, supermodularity, truthful equilibrium
JEL Classification: C7, D4working papers series
Date posted: November 3, 2000
© 2013 Social Science Electronic Publishing, Inc. All Rights Reserved.
This page was processed by apollo5 in 0.703 seconds