Search Frictions, Competing Mechanisms and Optimal Market Segmentation 

Search Frictions, Competing Mechanisms and Optimal Market Segmentation

By Pieter GautierRonald Wolthoff and Xiaoming Cai

Published in Journal of Economic Theory, 2017


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 a separate submarket for each type of buyer is the efficient outcome if and only if meetings are bilateral. In contrast, a single market with all agents is optimal if and only if the meeting technology satisfies a novel condition, which we call “joint concavity.” 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 joint concavity to two other properties of meeting technologies, invariance and non-rivalry, and explain the differences.

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