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Quick or cheap? Breaking points in dynamic markets


Mertikopoulos, Panayotis; Nax, Heinrich H; Pradelski, Bary S R (2019). Quick or cheap? Breaking points in dynamic markets. Working paper series / Department of Economics 338, University of Zurich.

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.

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.

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Additional indexing

Item Type:Working Paper
Communities & Collections:06 Faculty of Arts > Institute of Sociology
Working Paper Series > Department of Economics
Dewey Decimal Classification:300 Social sciences, sociology & anthropology
JEL Classification:D47, C78, C60, D80
Uncontrolled Keywords:Dynamic matching, online markets, market design, Mechanismus-Design-Theorie, Matching, Wartezeit
Language:English
Date:December 2019
Deposited On:30 Jan 2020 14:36
Last Modified:27 Nov 2020 07:33
Series Name:Working paper series / Department of Economics
Number of Pages:44
ISSN:1664-705X
OA Status:Green
Official URL:https://www.econ.uzh.ch/static/release/workingpapers.php?id=1017

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