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Priority search with outside options

Author

Listed:
  • Kim, Jaehong

    (The Wang Yanan Institute for Studies in Economics and Department of Economics, School of Economics, Xiamen University)

  • Li, Mengling

    (Department of Economics, School of Economics and The Wang Yanan Institute for Studies in Economics, Xiamen University)

  • Xu, Menghan

    (School of Economics and Wang Yanan Institute for Studies of Economics, Xiamen University)

Abstract

This paper examines the welfare implications of priority service in a frictional search environment with heterogeneous outside options. Priority search facilitates expedited matching with public options in the market by charging a service premium. Our main analysis demonstrates that a profit-maximizing priority search program always induces the efficient level of market participation. The key insight underpinning our results is the nonmonotonic relationship between the priority service premium and market participation, which is driven by the nonexclusivity of priority search. This finding extends to several market design details and elucidates how to simultaneously generate revenue and regulate congestion in the presence of matching frictions.

Suggested Citation

  • Kim, Jaehong & Li, Mengling & Xu, Menghan, 0. "Priority search with outside options," Theoretical Economics, Econometric Society.
    • Handle: RePEc:the:publsh:5651
    as

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    File URL: http://econtheory.org/ojs/index.php/te/article/viewForthcomingFile/5651/41029/1
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    More about this item

    Keywords

    Priority service; search friction; outside option; entry efficiency; market design;
    All these keywords.

    JEL classification:

    • C70 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - General
    • D47 - Microeconomics - - Market Structure, Pricing, and Design - - - Market Design
    • D60 - Microeconomics - - Welfare Economics - - - General
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness

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