Publication Date: July 2011
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.
Directed search, Matching, Premuneration value, Prematch investments, Search
JEL Classification Codes: C78, D40, D41, D50, D83
See CFP: 1408