Quick or Cheap? Breaking Points in Dynamic Markets

University of Zurich, Department of Economics, Working Paper No. 338

45 Pages Posted: 20 Feb 2020

Multiple version iconThere are 2 versions of this paper

Date Written: December 30, 2019

Abstract

We examine two-sided markets where players arrive stochastically over time and are drawn from a continuum of types. The cost of matching a client and provider varies, so a social planner is faced with two contending objectives: a) to reduce players' waiting time before getting matched; and b) to form efficient pairs in order to reduce matching costs. We show that such markets are characterized by a quick or cheap dilemma: Under a large class of distributional assumptions, there is no `free lunch', i.e., there exists no clearing schedule that is simultaneously optimal along both objectives. We further identify a unique breaking point signifying a stark reduction in matching cost contrasted by an increase in waiting time. Generalizing this model, we identify two regimes: one, where no free lunch exists; the other, where a window of opportunity opens to achieve a free lunch. Remarkably, greedy scheduling is never optimal in this setting.

Keywords: dynamic matching, online markets, market design

JEL Classification: D47, C78, C60, D80

Suggested Citation

Mertikopoulos, Panayotis and Nax, Heinrich H. and Pradelski, Bary, Quick or Cheap? Breaking Points in Dynamic Markets (December 30, 2019). University of Zurich, Department of Economics, Working Paper No. 338, Available at SSRN: https://ssrn.com/abstract=3524972 or http://dx.doi.org/10.2139/ssrn.3524972

Heinrich H. Nax

ETH Zürich ( email )

Rämistrasse 101
ZUE F7
Zürich, 8092
Switzerland

University of Zurich ( email )

Rämistrasse 71
Zürich, CH-8006
Switzerland

Bary Pradelski

CNRS, Maison Francaise ( email )

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