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Competition in a Posted-Salary Matching Market under Private Information

Boosey, Luke A. (2016) Competition in a Posted-Salary Matching Market under Private Information. B. E. Journal of Theoretical Economics, 16 (2). pp. 599-631. ISSN 1935-1704. doi:10.1515/bejte-2015-0022.

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We study a posted-salary labor market in which firms engage in salary competition. Firms’ preferences over workers are private information, creating uncertainty about competitive pressure for different workers. We consider a baseline 2-firm, 2-worker model, then extend the analysis to larger markets by replicating the baseline. We characterize the unique Bayesian- Nash equilibrium, in which each firm type chooses a distributional strategy with interval support in the salary space. The main result shows that competition is localized, in the sense that firm types with a common most preferred worker choose non-overlapping, adjacent supports. We also provide numerical results to show that the equilibrium strategies in finite replicated markets converge to the corresponding equilibrium strategies in a market with a continuum of firms and workers.

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Additional Information:© 2016 by Walter de Gruyter GmbH. Published online March 24, 2016. I am most grateful to John Ledyard, Federico Echenique, Jean-Laurent Rosenthal, Leeat Yariv, Salvatore Nunnari, Cary Frydman, Sang-Mok Lee, Guilherme Pereira de Freitas, Svetlana Pevnitskaya, and Dmitry Ryvkin for their comments and suggestions. I also thank seminar participants at Caltech, the Canadian Economic Theory Conference (2011), and North American Econometric Society Summer Meeting (2011). Any remaining errors are mine.
Subject Keywords:salary competition; posted salary; two-sided markets; Bayesian games; replicated markets
Issue or Number:2
Classification Code:JEL: C72; C78; D82; J41
Record Number:CaltechAUTHORS:20161205-101550505
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Usage Policy:No commercial reproduction, distribution, display or performance rights in this work are provided.
ID Code:72550
Deposited By: Tony Diaz
Deposited On:06 Dec 2016 20:54
Last Modified:11 Nov 2021 05:03

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