Search Frictions, Competing Mechanisms and Optimal Market Segmentation
30 Pages Posted: 22 Jun 2016
There are 3 versions of this paper
Search Frictions, Competing Mechanisms and Optimal Market Segmentation
Search Frictions, Competing Mechanisms and Optimal Market Segmentation
Search Frictions, Competing Mechanisms and Optimal Market Segmentation
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: Suggested Citation