Dutch Auctions in Matching Markets with Waiting Costs
TLDR
This paper introduces a TEV framework to compare Dutch auctions and posted prices in matching markets, analyzing their impact on contracting speed, participation, and revenue.
Key contributions
- Introduces a Timing-Entry-Volume (TEV) framework to analyze matching mechanisms with payoff-relevant time-to-contract.
- Compares Dutch auctions vs. immediate posted prices; dominance depends on earnings and timing gaps.
- Dutch auctions dominate batch-clearing benchmarks through both timing and payment channels.
- In two-sided markets, cross-side complementarity amplifies Dutch auction advantages and welfare gains.
Why it matters
This paper offers a critical framework for matching platforms to choose between Dutch auctions and posted prices, especially when time is a factor. It provides estimable conditions for mechanism dominance, potentially leading to improved market efficiency, higher match volume, and increased revenue for platforms.
Original Abstract
When time-to-contract is payoff-relevant, how should a matching platform choose between a descending-clock (Dutch) mechanism and posted prices? We introduce a timing--entry--volume (TEV) framework that traces the causal chain from mechanism format through contracting speed, participation incentives, match volume, and revenue. Against immediate posted prices, dominance depends on the earnings and timing gaps and may hold for all waiting costs, only above a floor~$λ^*$, only below a ceiling~$λ^{**}$, or not at all. Against a batch-clearing benchmark, Dutch dominates through both timing and payment channels. In the two-sided extension, cross-side complementarity amplifies a one-sided advantage into equilibrium dominance on both sides, with welfare gains when match surplus is sufficiently large. All dominance conditions are stated in estimable quantities.
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