CFDP 1810
Pricing and Investments in Matching Markets
Author(s):Publication Date: July 2011
Pages: 68
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 Codes: C78, D40, D41, D50, D83
See CFP: 1408