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Equivalence of Canonical Matching Models

John Kennes, Daniel le Maire and Sebastian Roelsgaard
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Sebastian Roelsgaard: Department of Economics and Business Economics, Aarhus University, Denmark

Economics Working Papers from Department of Economics and Business Economics, Aarhus University

Abstract: This paper offers expected revenue and pricing equivalence results for canonical models of pricing and matching. The equivalence of these models is centered on the assumption that there are large numbers of buyers and sellers and the assignment of buyers within a submarket of sellers is random. Therefore, the distribution of buyers to sellers is approximated by the Poisson distribution. The list of canonical matching models includes the models developed by Burdett and Judd (1983), Shimer (2005), and McAfee (1993). In the Burdett and Judd (1983) model, buyers post prices and the equilibrium features price dispersion because identical buyers play mixed strategies. In the Shimer (2005) model, sellers post a vector of prices corresponding to different buyer types. In equilibrium, all identical buyers pay the same price. In the McAfee (1993) model, equilibrium pricing is determined by simple second price auctions. McAfee’s model also features price dispersion, because the number of bidders at each auction is stocastic.

Keywords: Directed search; price dispersion; competing auctions; Poisson distribution (search for similar items in EconPapers)
JEL-codes: D47 D83 J64 (search for similar items in EconPapers)
Pages: 17
Date: 2018-11-19
New Economics Papers: this item is included in nep-des, nep-gth and nep-mic
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Journal Article: Equivalence of canonical matching models (2020) Downloads
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