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Pricing and investments in matching markets

1st Person: Mailath, George J.
Additional Persons: Samuelson, Larry; Postlewaite, Andrew
Type of Publication: Article
Language: English
Published: Wiley 2013
Online: http://hdl.handle.net/10419/150200
Description: 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.
ISSN: 1555-7561

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