Fairness and Competition in a Bilateral Matching Market

Helmut Bester

No 287, Rationality and Competition Discussion Paper Series from CRC TRR 190 Rationality and Competition

Abstract: This paper analyzes fairness and bargaining in a dynamic bilateral matching market. Traders from both sides of the market are pairwise matched to share the gains from trade. The bargaining outcome depends on the traders’ fairness attitudes. In equilibrium fairness matters because of market frictions. But, when these frictions become negligible, the equilibrium approaches the Walrasian competitive equilibrium, independently of the traders’ inequity aversion. Fairness may yield a Pareto improvement; but also the contrary is possible. Overall, the market implications of fairness are very different from its effects in isolated bilateral bargaining.

Keywords: fairness; inequity aversion; bargaining; ultimatum game; matching market; search costs; competitive equilibrium (search for similar items in EconPapers)
JEL-codes: C78 D83 (search for similar items in EconPapers)
Date: 2021-10-18
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Citations: View citations in EconPapers (1)

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Related works:
Journal Article: Fairness and competition in a bilateral matching market (2024)
Working Paper: Fairness and competition in a bilateral matching market (2021)
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Persistent link: https://EconPapers.repec.org/RePEc:rco:dpaper:287

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