When does Competition and Costly Information Acquisition Lead to a Deadlock?
27 Pages Posted: 12 Nov 2020
Date Written: September 22, 2020
We study a matching market with N agents who compete over M = αN opportunities. Agents must perform a costly inspection to verify compatibility prior to matching, and are willing to inspect their current favorite opportunity only if, should they find it compatible, they will be guaranteed a match. We ask when, in large random markets, will information deadlocks arise, i.e., in which markets will a constant fraction of agents get stuck waiting for a guaranteed inspection to become available. We prove, using the machinery of message passing and density evolution from statistical physics, that the existence of an information deadlock is governed by the opportunity to agent ratio α. Numerical evidence shows a phase transition from the information deadlock regime to a deadlock-free regime (where a vanishingly small fraction of agents are stuck waiting) as we gradually increase α.
Keywords: matching markets, search frictions, information deadlock, message passing algorithm, phase transition
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