Pricing and Investments in Matching Markets
Diﬀerent markets are cleared by diﬀerent types of prices — seller-speciﬁc prices that are uniform across buyers in some markets, and personalized prices tailored to the buyer in others. We examine a setting in which buyers and sellers make investments before matching in a competitive market. We introduce the notion of premuneration values — the values to the transacting agents prior to any transfers — created by a buyer-seller match. Personalized price equilibrium outcomes are independent of premuneration values and exhibit ineﬀiciencies only in the event of “coordination failures,” while uniform-price equilibria depend on premuneration values and in general feature ineﬀicient investments even without coordination failures. There is thus a trade-oﬀ between the costs of personalizing prices and the ineﬀicient investments under uniform prices. We characterize the premuneration values under which uniform-price equilibria similarly exhibit ineﬀiciencies only in the event of coordination failures.
Mailath, George J.; Postlewaite, Andrew; and Samuelson, Larry, "Pricing and Investments in Matching Markets" (2011). Cowles Foundation Discussion Papers. 2156.