Pricing and matching with frictions

K. Burdett, S. Shi, R. Wright

Research output: Contribution to journalArticle

183 Scopus citations

Abstract

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.

Original languageEnglish (US)
Pages (from-to)1060-1085
Number of pages26
JournalJournal of Political Economy
Volume109
Issue number5
DOIs
StatePublished - Jan 1 2001

All Science Journal Classification (ASJC) codes

  • Economics and Econometrics

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