DP12542 Meetings and Mechanisms

Author(s): Xiaoming Cai, Pieter A. Gautier, Ronald Wolthoff
Publication Date: December 2017
Keyword(s): competing mechanisms, matching function, meeting technology, search frictions
JEL(s): C78, D44, D83
Programme Areas: Labour Economics, Industrial Organization
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=12542

We analyze a market in which sellers compete for heterogeneous buyers by posting mechanisms. A general meeting technology governs how buyers and sellers meet. We introduce a one-to-one transformation of this meeting technology that helps to clarify and extend many of the existing results in the literature, which has focused on two special cases: urn-ball and bilateral meetings. We show that the optimal mechanism for sellers is to post auctions combined with a reserve price equal to their own valuation and an appropriate fee (or subsidy) which is paid by (or to) all buyers meeting the seller. Even when there are externalities in the meeting process, the equilibrium is efficient. Finally, we analyze the sorting patterns between heterogeneous buyers and sellers and show under which conditions high-value sellers attract more high-value buyers in expectation.