Meeting technologies and optimal trading mechanisms in competitive search markets

Abstract

In a market in which sellers compete by posting mechanisms, we study how the properties of the meeting technology affect the mechanism that sellers select. In general, sellers have incentive to use mechanisms that are socially efficient. In our environment, sellers achieve this by posting an auction with a reserve price equal to their own valuation, along with a transfer that is paid by (or to) all buyers with whom the seller meets. However, we define a novel condition on meeting technologies, which we call "invariance," and show that the transfer is equal to zero if and only if the meeting technology satisfies this condition.JEL classification: C78, D44, D83.

Search frictions, competing mechanisms and optimal market segmentation

“…We conclude our analysis by comparing our findings to existing results in section 4. In particular, we discuss how joint concavity relates to two other properties of meeting technologies described in the literature: (i) invariance as introduced by Lester et al (2015), and (ii) nonrivalry as introduced by Eeckhout and Kircher (2010b). We show that invariance is a su cient (but not a necessary) condition for joint concavity, while non-rivalry is a necessary (but not a su cient) condition, and we explain why this is the case.…”

“…Invariance. Introduced by Lester et al (2015), an invariant technology is one in which the queue of blue buyers µ at a seller is a su cient statistic for the distribution of the number of meetings between blue buyers and that seller. Formally,…”

“…4 Relative to their paper, we contribute by identifying conditions for pooling or separating equilibria that are both necessary and su cient. Lester et al (2015) use arbitrary meeting technologies in a model in which buyers' valuations are realized after they arrive at sellers. Their paper has therefore no implications for market segmentation and focusses instead on the question when meeting fees arise as part of the equilibrium mechanism.…”

“…In line with most of the literature (e.g. Peters, 1997;Eeckhout and Kircher, 2010b;Lester et al, 2015Lester et al, , 2016, we abstract from mechanisms that condition on other mechanisms in the market. Epstein and Peters (1999) and Peters (2001) provide a detailed discussion.…”

“…Pairwise Urn-Ball. This technology, described by Lester et al (2015), is a variation on the urn-ball technology. Buyers first form pairs, after which each pair is randomly assigned to a seller in the submarket.…”