COWLES FOUNDATION FOR RESEARCH IN
ECONOMICS Box 208281
COWLES FOUNDATION DISCUSSION PAPER NO. 1810 Pricing and Investments in Matching Markets George J. Mailath, Andrew Postlewaite, and Larry Samuelson July 2011 Different markets are cleared by different types of prices —
seller-specific prices that are uniform across buyers in some markets, and personalized
prices tailored to the buyer in others. We examine a setting in which buyers and sellers
make investments before matching in a competitive market. We introduce the notion of
premuneration values — the values to the transacting agents prior to any transfers
— created by a buyer-seller match. Personalized price equilibrium outcomes are
independent of premuneration values and exhibit inefficiencies only in the event of
"coordination failures," while uniform-price equilibria depend on premuneration
values and in general feature inefficient investments even without coordination failures.
There is thus a trade-off between the costs of personalizing prices and the inefficient
investments under uniform prices. We characterize the premuneration values under which
uniform-price equilibria similarly exhibit inefficiencies only in the event of
coordination failures. |
