Discussion paper

DP11310 Search Frictions, Competing Mechanisms and Optimal Market Segmentation

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.


Gautier, P, X Cai and R Wolthoff (2016), ‘DP11310 Search Frictions, Competing Mechanisms and Optimal Market Segmentation‘, CEPR Discussion Paper No. 11310. CEPR Press, Paris & London. https://cepr.org/publications/dp11310