Price Discrimination in Matching Markets

Abstract

This paper considers the problem of a monopoly matchmaker that uses a schedule of entrance fees to sort different types of agents on the two sides of a matching market into different markets, where agents randomly form pairwise matches. We make the standard assumption that the match value function exhibits complementarities, so that the efficient matching is positive assortative. We show that a necessary and sufficient condition for the revenue-maximizing market structure to be efficient requires a suitably defined virtual match value function to exhibit complementarities in the positive assortative matching. Applications to exclusion policies and one-sided subsidies are provided.