Search frictions, competing mechanisms and optimal market segmentation

Xiaoming Cai, Pieter A. Gautier, Ronald P. Wolthoff*

*Corresponding author for this work

Research output: Contribution to JournalArticleAcademicpeer-review

Abstract

In a market in which sellers compete for heterogeneous buyers by posting mechanisms, we analyze how the properties of the meeting technology affect the allocation of buyers to sellers. We show that a separate submarket for each type of buyer is the efficient outcome if and only if meetings are bilateral. In contrast, a single market with all agents is optimal if and only if the meeting technology satisfies a novel condition, which we call “joint concavity.” Both outcomes can be decentralized by sellers posting auctions combined with a fee that is paid by (or to) all buyers with whom the seller meets. Finally, we compare joint concavity to two other properties of meeting technologies, invariance and non-rivalry, and explain the differences.

Original languageEnglish
Pages (from-to)453-473
Number of pages21
JournalJournal of Economic Theory
Volume169
Issue numberMay
DOIs
Publication statusPublished - 2017

Keywords

  • Competing mechanisms
  • Heterogeneity
  • Matching function
  • Meeting technology
  • Search frictions

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