Pricing and Investments in Matching Markets
69 Pages Posted: 22 Jul 2011
Date Written: March 7, 2011
Abstract
Different markets are cleared by different types of prices -- seller-specific prices that are uniform across buyers in some markets, and personalized prices tailored to the buyer in others. We examine a setting in which buyers and sellers make investments before matching in a competitive market. We introduce the notion of premuneration values -- the values to the transacting agents prior to any transfers -- created by a buyer-seller match. Personalized price equilibrium outcomes are independent of premuneration values and exhibit inefficiencies only in the event of "coordination failures," while uniform-price equilibria depend on premuneration values and in general feature inefficient investments even without coordination failures. There is thus a trade-off between the costs of personalizing prices and the inefficient investments under uniform prices. We characterize the premuneration values under which uniform-price equilibria similarly exhibit inefficiencies only in the event of coordination failures.
Keywords: Directed search, Matching, Premuneration value, Prematch investments, Search
JEL Classification: C78, D40, D41, D50, D83
Suggested Citation: Suggested Citation
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