Quick or cheap? Breaking points in dynamic markets

Panayotis Mertikopoulos, Heinrich H. Nax and Bary S. R. Pradelski

No 338, ECON - Working Papers from Department of Economics - University of Zurich

Abstract: We examine two-sided markets where players arrive stochastically over time and are drawn from a continuum of types. The cost of matching a client and provider varies, so a social planner is faced with two contending objectives: a) to reduce players' waiting time before getting matched; and b) to form efficient pairs in order to reduce matching costs. We show that such markets are characterized by a quick or cheap dilemma: Under a large class of distributional assumptions, there is no `free lunch', i.e., there exists no clearing schedule that is simultaneously optimal along both objectives. We further identify a unique breaking point signifying a stark reduction in matching cost contrasted by an increase in waiting time. Generalizing this model, we identify two regimes: one, where no free lunch exists; the other, where a window of opportunity opens to achieve a free lunch. Remarkably, greedy scheduling is never optimal in this setting.

Keywords: Dynamic matching; online markets; market design (search for similar items in EconPapers)
JEL-codes: C60 C78 D47 D80 (search for similar items in EconPapers)
Date: 2019-12
New Economics Papers: this item is included in nep-com, nep-des, nep-mic and nep-ore
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Persistent link: https://EconPapers.repec.org/RePEc:zur:econwp:338

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