The first working paper version of this paper was titled “Pricing in Matching Markets” (2010). Earlier versions (without the existence proof) were distributed at various presentations beginning in 2003. We thank Philipp Kircher, Ben Lester, Antonio Penta, and participants at numerous seminars and conferences for helpful comments, the co-editor (Gadi Barlevy) and referees for their thoughtful reports, and Zehao Hu for excellent research assistance. We thank the National Science Foundation (Grants SES-0350969, SES-0549946, SES-0648780, and SES-0850263) for financial support.
Pricing and investments in matching markets
Article first published online: 16 MAY 2013
Copyright © 2013 George J. Mailath, Andrew Postlewaite, and Larry Samuelson
Volume 8, Issue 2, pages 535–590, May 2013
How to Cite
Mailath, G. J., Postlewaite, A. and Samuelson, L. (2013), Pricing and investments in matching markets. Theoretical Economics, 8: 535–590. doi: 10.3982/TE1189
- Issue published online: 16 MAY 2013
- Article first published online: 16 MAY 2013
- Submitted 2012-3-12. Final version accepted 2012-8-2. Available online 2012-8-3.
- Directed search;
- premuneration value;
- prematch investments;
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.