Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/172335
Authors: 
Dizdar, Deniz
Moldovanu, Benny
Szech, Nora
Year of Publication: 
2017
Series/Report no.: 
WZB Discussion Paper SP II 2017-310
Abstract: 
Agents in a finite two-sided market make costly investments and are then matched assortatively based on these investments. Besides signaling complementary types, investments also generate benefits for partners. We shed light on quantitative properties of the equilibrium investment behavior. The bilateral external benefits induce an investment multiplier effect. This multiplier effect depends in a complex way on agents' uncertainty about their rank within their own market side and on their uncertainty about the types and investments of potential partners. We study how the multiplier effect depends on market size and how it interacts with other important factors such as the costs of investment and the signaling incentives induced by competition for more desirable partners. We use our results to characterize equilibrium utilities in large markets. For small markets, our results lead to bounds on the hold-up problem.
Subjects: 
matching
signaling
investment
multiplier effect
JEL: 
C78
D44
D82
Document Type: 
Working Paper

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