“On the Segmentation of Markets” by Nicolas L. JACQUET
Nicolas L. JACQUET
University of Pennsylvania
This paper endogenizes the market structure of an economy with heterogeneous agents who want to form bilateral matches in the presence of search frictions and when utility is non-transferable. We depart from standard matching models where all agents are assumed to be in a unique meeting place by assuming the existence of infinitely many meeting places and allowing agents to choose which meeting place to be in. The market is thus allowed to be segmented into different meeting places. First, we characterize all possible steady state market structures and we show that the number of classes associated with each of these market structures is finite. An initial pre-frictions stage is then introduced to endogenize the market structure: agents can cooperatively decide which of these market structures to implement. The market structures that can be chosen in this first stage are all welfare equivalent and are shown to maximize welfare.