Document Type
Discussion Paper
Publication Date
1-1-2020
CFDP Number
2217
CFDP Pages
45
Journal of Economic Literature (JEL) Code(s)
D47, C78, C60, D80
Abstract
We examine two-sided markets where players arrive stochastically over time and are drawn from a continuum of types. The cost of matching a client and provider varies, so a social planner is faced with two contending objectives: a) to reduce players’ waiting time before getting matched; and b) to form efficient pairs in order to reduce matching costs. We show that such markets are characterized by a quick or cheap dilemma: Under a large class of distributional assumptions, there is no `free lunch’, i.e., there exists no clearing schedule that is simultaneously optimal along both objectives. We further identify a unique breaking point signifying a stark reduction in matching cost contrasted by an increase in waiting time. Generalizing this model, we identify two regimes: one, where no free lunch exists; the other, where a window of opportunity opens to achieve a free lunch. Remarkably, greedy scheduling is never optimal in this setting.
Recommended Citation
Mertikopoulos, Panayotis; Nax, Heinrich H.; and Pradelski, Bary S.R., "Quick or Cheap? Breaking Points in Dynamic Markets" (2020). Cowles Foundation Discussion Papers. 30.
https://elischolar.library.yale.edu/cowles-discussion-paper-series/30