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Working paper 727

Xiaoming Cai, Pieter Gautier, Ronald Wolthoff, "Meetings and Mechanisms", 2022-07-01
Main Text (application/pdf) (649,674 bytes)

Abstract: In this paper, we construct a framework to investigate how the way in which market participants meet each other affects outcomes like equilibrium trading mechanisms and allocations. We do so in an environment in which identical sellers post mechanisms to compete for buyers with ex-ante heterogeneous private valuations. We show that the market may segment into multiple submarkets, each consisting of all sellers posting a particular mechanism and all buyers deciding to visit those sellers. Under mild conditions, high-valuation buyers are all located in the same submarket. Then, we establish under what conditions, low valuation buyers are in: (i) the same submarket, (ii) a different submarket and (iii) a mixture of (i) and (ii). The decentralized equilibrium is always efficient when sellers can post auctions with reserve prices or entry fees.

Keywords: search frictions; directed search; matching function; meeting technology; competing mechanisms; competing auctions

JEL Classification: C78; D44; D83