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Competition in a Posted-Salary Matching Market under Private Information

Luke Boosey

The B.E. Journal of Theoretical Economics, 2016, vol. 16, issue 2, 599-631

Abstract: We study a posted-salary labor market in which firms engage in salary competition. Firms’ preferences over workers are private information, creating uncertainty about competitive pressure for different workers. We consider a baseline 2-firm, 2-worker model, then extend the analysis to larger markets by replicating the baseline. We characterize the unique Bayesian- Nash equilibrium, in which each firm type chooses a distributional strategy with interval support in the salary space. The main result shows that competition is localized, in the sense that firm types with a common most preferred worker choose non-overlapping, adjacent supports. We also provide numerical results to show that the equilibrium strategies in finite replicated markets converge to the corresponding equilibrium strategies in a market with a continuum of firms and workers.

Date: 2016
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DOI: 10.1515/bejte-2015-0022

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