Cross-Subsidization and Matching Design

Renato Gomes and Alessandro Pavan

Discussion Papers from Northwestern University, Center for Mathematical Studies in Economics and Management Science

Abstract: We develop a theory of price discrimination in many-to-many matching markets in which agents’ preferences are vertically and horizontally differentiated. The optimal plans induce negative assortative matching at the margin: agents with a low value for interacting with other agents are included in the matching sets of only those agents from the opposite side whose value for matching is sufficiently high (cross-subsidization). We deliver testable predictions relating the optimal matching plans and price schedules to the distribution of the agents’ preferences and attractiveness. The analysis has implications for the design of business-to-business platforms, advertising, and cable TV packages. JEL Classification Numbers: D82

Keywords: Dynamic Voting; Condorcet Winner; Commitment; Condorcet Cycle; Social Experimentation; Status Quo Bias; Social Inefficiency; Social Inertia (search for similar items in EconPapers)
Date: 2013-01-01
New Economics Papers: this item is included in nep-gth and nep-mic
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Citations: View citations in EconPapers (4)

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