Matching and Price Competition

Authors: Bulow, Jeremy; Levin, Jonathan

Source: The American Economic Review, Volume 96, Number 3, June 2006 , pp. 652-668(17)

Publisher: American Economic Association

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Abstract:

We develop a model in which firms set impersonal salary levels before matching with workers. Wages fall relative to any competitive equilibrium while profits rise almost as much, implying little inefficiency. Furthermore, the best firms gain the most from the system while wages become compressed. In light of our results, we discuss the performance of alternative institutions and the recent antitrust case against the National Resident Matching Program.

Document Type: Research article

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