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Working paper 588

Xiaoming Cai, Pieter Gautier, Ronald Wolthoff, "Meetings and Mechanisms", 2017-08-30
Main Text (application/pdf) (689,912 bytes)

Abstract: We analyze a market in which sellers compete for heterogeneous buyers by posting mechanisms. A general meeting technology governs how buyers and sellers meet. We introduce a one-to-one transformation of this meeting technology that helps to clarify and extend many of the existing results in the literature, which has focused on two special cases: urn-ball and bilateral meetings. We show that the optimal mechanism for sellers is to post auctions combined with a reserve price equal to their own valuation and an appropriate fee (or subsidy) which is paid by (or to) all buyers meeting the seller. Even when there are externalities in the meeting process, the equilibrium is efficient. Finally, we analyze the sorting patterns between heterogeneous buyers and sellers and show under which conditions high-value sellers attract more high-value buyers in expectation.

Keywords: search frictions, matching function, meeting technology, competing mechanisms, heterogeneity

JEL Classification: C78, D44, D83