Assignment Markets: Theory and Experiments
Arthur Dolgopolov (),
Daniel Houser (),
Cesar Martinelli () and
Thomas Stratmann ()
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Arthur Dolgopolov: Interdisciplinary Center for Economic Science and Department of Economics, George Mason University
No 1075, Working Papers from George Mason University, Interdisciplinary Center for Economic Science
We study theoretically and experimentally assignment markets, i.e. two-sided markets where indivisible heterogeneous items with unit demand and unit supply are traded for money, as exemplified by housing markets. We define an associated strategic market game, and show that every Nash equilibrium outcome of this game is a competitive equilibrium allocation with respect to an economy consisting exclusively of the goods that were traded. That is, inefficiency may arise from miscoordination because some goods are not traded. Experimental results show players behaving close to Nash equilibrium predictions for auction-like market designs and close to generalized bargaining for the market design that incorporates decentralized communication. Communication improves efficiency, but introduces with some probability outcomes inconsistent with Nash equilibria.
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