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Fairness and competition in a bilateral matching market

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  • Bester, Helmut

Abstract

This paper analyzes fairness and bargaining in a dynamic bilateral matching market. Traders from both sides of the market are pairwise matched to share the gains from trade. The bargaining outcome depends on the traders' fairness attitudes. In equilibrium fairness matters because of market frictions. But, when these frictions become negligible, the equilibrium approaches theWalrasian competitive equilibrium, independently of the traders' inequity aversion. Fairness may yield a Pareto improvement; but also the contrary is possible. Overall, the market implications of fairness are very different from its effects in isolated bilateral bargaining.

Suggested Citation

  • Bester, Helmut, 2021. "Fairness and competition in a bilateral matching market," Discussion Papers 2021/11, Free University Berlin, School of Business & Economics.
    • Handle: RePEc:zbw:fubsbe:202111
    DOI: 10.17169/refubium-30998
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    Cited by:

    1. Bester, Helmut & Sákovics, József, 2024. "Cooperation, competition, and welfare in a matching market," Games and Economic Behavior, Elsevier, vol. 143(C), pages 357-369.

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    More about this item

    Keywords

    Fairness; inequity aversion; bargaining; ultimatum game; matching market; search costs; competitive equilibrium;
    All these keywords.

    JEL classification:

    • C78 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Bargaining Theory; Matching Theory
    • D5 - Microeconomics - - General Equilibrium and Disequilibrium
    • D6 - Microeconomics - - Welfare Economics
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • D9 - Microeconomics - - Micro-Based Behavioral Economics

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