Search Frictions, Competing Mechanisms and Optimal Market Segmentation

30 Pages Posted: 22 Jun 2016

See all articles by Xiaoming Cai

Xiaoming Cai

Peking University HSBC Business School

Pieter A. Gautier

Free University of Amsterdam; Tinbergen Institute Amsterdam (TIA); IZA Institute of Labor Economics

Ronald P. Wolthoff

University of Toronto - Department of Economics; IZA Institute of Labor Economics

Multiple version iconThere are 3 versions of this paper

Date Written: May 30, 2016

Abstract

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 a separate submarket for each type of buyer is the efficient outcome if and only if meetings are bilateral. In contrast, a single market with all agents is optimal if and only if the meeting technology satisfies a novel condition, which we call “joint concavity.” 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 joint concavity to two other properties of meeting technologies, invariance and non-rivalry, and explain the differences.

Keywords: search frictions, matching function, meeting technology, competing mechanisms, heterogeneity

JEL Classification: C780, D440, D830

Suggested Citation

Cai, Xiaoming and Gautier, Pieter A. and Wolthoff, Ronald P. and Wolthoff, Ronald P., Search Frictions, Competing Mechanisms and Optimal Market Segmentation (May 30, 2016). CESifo Working Paper Series No. 5916, Available at SSRN: https://ssrn.com/abstract=2798611 or http://dx.doi.org/10.2139/ssrn.2798611

Xiaoming Cai

Peking University HSBC Business School

Pieter A. Gautier (Contact Author)

Free University of Amsterdam ( email )

Amsterdam, ND North Holland
Netherlands

Tinbergen Institute Amsterdam (TIA) ( email )

Gustav Mahlerplein 117
Amsterdam, 1082 MS
Netherlands

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

Ronald P. Wolthoff

University of Toronto - Department of Economics ( email )

150 St. George Street
Toronto, Ontario M5S 3G7
Canada

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

Do you have negative results from your research you’d like to share?

Paper statistics

Downloads
32
Abstract Views
529
PlumX Metrics