Inclusive versus Exclusive Markets: Search Frictions and Competing Mechanisms
Pieter Gautier () and
Ronald Wolthoff ()
Working Papers from University of Toronto, Department of Economics
In a market in which sellers compete for heterogeneous buyers by posting mechanisms, we analyze how the properties of the meeting technology affect the allocation of buyers to sellers. We show that exclusive markets (i.e. a separate submarket for each type of buyer) are the efficient outcome if and only if meetings are bilateral. In contrast, an inclusive market (i.e. a single market in which all buyer types pool) is optimal if and only if the meeting technology satisfies a novel condition, which we call "love for variety." Both outcomes can be decentralized by sellers posting auctions combined with a fee that is paid by (or to) all buyers with whom the seller meets. Finally, we compare love for variety to two other properties of meeting technologies, invariance and non-rivalry, and explain the differences.
Keywords: search frictions; matching function; meeting technology; competing mechanisms; heterogeneity (search for similar items in EconPapers)
JEL-codes: C78 D44 D83 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-gth and nep-mic
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