Pricing and Matching with Frictions
01 Dec 2001
Suppose that n buyers each want one unit and m sellers each have one or more units of a good. Sellers post prices, and then buyers choose sellers. In symmetric equilibrium, similar sellers all post one price, and buyers randomize. Hence, more or fewer buyers may arrive than a seller can accommodate. We call this frictions. We solve for prices and the endogenous matching function for finite n and m and consider the limit as n and m grow. The matching function displays decreasing returns but converges to constant returns. We argue that the standard matching function in the literature is misspecified and discuss implications for the Beveridge curve.
Journal of Political Economy
Volume and page numbers
109 , 1060 -1085
Held online ASL - http://serlib0.essex.ac.uk/record=b1599760~S5