Economics Brown Bag Seminar Series - Gabor Virag (University of Toronto)

Title: Platform competition and trading mechanisms

Abstract: In this paper, we study a search model with two markets. In one market the sellers post prices and the buyers make visiting decisions, and in the other the roles are reversed. Agents first choose which market to operate in, that is, they self-select into different bargaining protocols. We show that if the number of buyers and sellers are similar, then the constrained efficient allocation has both markets open. Moreover, the equilibrium decentralizes the constrained efficient allocation. Using these results, we show that a monopolist trading platform implements the constrained optimal allocation. However, a duopoly does not implement the constrained optimum as the platforms distort the equilibrium queue lengths to soften competition between them.