CFDP 1752

Pricing in Matching Markets

Author(s): 

Publication Date: January 2010

Pages: 65

Abstract: 

Different markets are cleared by different types of prices — a universal price for all buyers and sellers in some markets, seller-specific prices that are uniform across buyers in others, and personalized prices tailored to both the buyer and the seller in yet others. We introduce the notion of premuneration values — the values in the absence of any muneration (payments) — created by the buyer-seller match. We characterize the premuneration values under which uniform-price and personalized-price equilibria agree. In this case, we have efficient allocations, including pre-match investment decisions, without the costs of personalized pricing. We then examine the inefficiencies that arise when the premuneration values preclude the agreement of uniform-price and personalized-price equilibria. We view premuneration values as an important consideration in market design.

Keywords: 

Directed search, Matching, Premuneration value, Prematch investments, Search

JEL Classification Codes:  C78, D40, D41, D50, D83