No Holdup in Dynamic Matching Markets

28 Pages Posted: 4 Aug 2018 Last revised: 15 Apr 2019

See all articles by Matthew Elliott

Matthew Elliott

Cambridge University

Eduard Talamàs

University of Pennsylvania

Abstract

In many settings, heterogenous agents make non-contractible investments before bargaining over both who matches with whom and the terms of trade. In thin markets, the holdup problem---that is, underinvestment caused by agents receiving only a fraction of the returns from their investments---is ubiquitous. Using a non-cooperative investment and bargaining game, we show that holdup need not be a problem in markets with dynamic entry---even if they are thin at every point in time. This provides non-cooperative foundations for the standard price-taking assumption in matching markets, and shows that intertemporal competition can perfectly substitute for intratemporal competition.

Keywords: Holdup; Noncooperative bargaining; intertemporal competition; dynamic entry; outside options.

JEL Classification: C72, C78, D40, D41

Suggested Citation

Elliott, Matthew and Talamàs, Eduard, No Holdup in Dynamic Matching Markets. Available at SSRN: https://ssrn.com/abstract=3218411 or http://dx.doi.org/10.2139/ssrn.3218411

Matthew Elliott (Contact Author)

Cambridge University ( email )

Faculty of Economics
Austin Robinson Building Sidgwick Avenue
Cambridge, CB39DD
United Kingdom

Eduard Talamàs

University of Pennsylvania ( email )

133 South 36th Street
Philadelphia, PA Philadelphia 19104
United States

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