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

7 Downloads (Pure)

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
Early online date19 Mar 2017
DOIs
Publication statusPublished - May 2017

Funding

The idea for this paper grew out of earlier fruitful collaboration with James Albrecht, Ben Lester, Ludo Visschers and Susan Vroman. We thank the editor, the associate editor, three referees, Philipp Kircher, Guido Menzio, Michael Peters, Gábor Virág, and various seminar and conference participants for valuable comments. Ronald Wolthoff gratefully acknowledges financial support from the Connaught Fund at the University of Toronto.

FundersFunder number
Connaught Fund at the University of Toronto
Economic and Social Research CouncilES/L009633/1

    Keywords

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

    Cite this