Discussion Paper Details

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Title: Search Frictions, Competing Mechanisms and Optimal Market Segmentation

Author(s): Xiaoming Cai, Pieter A. Gautier and Ronald Wolthoff

Publication Date: June 2016

Keyword(s): competing mechanisms, matching function, meeting technology and search frictions

Programme Area(s): Industrial Organization and Labour Economics

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.

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Bibliographic Reference

Cai, X, Gautier, P and Wolthoff, R. 2016. 'Search Frictions, Competing Mechanisms and Optimal Market Segmentation'. London, Centre for Economic Policy Research.