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Quick or cheap? Breaking points in dynamic markets

Author

Listed:
  • Panayotis Mertikopoulos
  • Heinrich H. Nax
  • Bary S. R. Pradelski

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.

Suggested Citation

  • Panayotis Mertikopoulos & Heinrich H. Nax & Bary S. R. Pradelski, 2019. "Quick or cheap? Breaking points in dynamic markets," ECON - Working Papers 338, Department of Economics - University of Zurich.
  • Handle: RePEc:zur:econwp:338
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    File URL: https://www.zora.uzh.ch/id/eprint/182597/1/econwp338.pdf
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    References listed on IDEAS

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    More about this item

    Keywords

    Dynamic matching; online markets; market design;
    All these keywords.

    JEL classification:

    • D47 - Microeconomics - - Market Structure, Pricing, and Design - - - Market Design
    • C78 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Bargaining Theory; Matching Theory
    • C60 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - General
    • D80 - Microeconomics - - Information, Knowledge, and Uncertainty - - - General

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