Market design--economic engineering--has been successful in the redesign of real-world "two-sided matching markets," including the matching of doctors to residencies and the assignment of students to schools. A recent and growing literature has shown that the methods and results of two-sided matching theory extend to substantially more general settings, including "trading networks" in which agents negotiate over contracts.
Unlike two-sided matching markets, trading networks feature intermediaries, agents who both buy and sell in the market. These intermediaries may be intermediate producers (as in most economic models of supply chains) or may simply facilitate trade (e.g., through provision of information). Although the presence of intermediaries is the defining distinction between the matching-in-networks model and the previous two-sided frameworks, the analysis of intermediaries in these matching models has been limited.
This research will further our understanding of the behavior and impact of market intermediaries. Theoretical work using the matching-in-networks framework will be supplemented with detailed empirical analyses using plant-level microdata on production networks, in order to gain insight into the magnitudes of intermediaries' effects on welfare. Simulated counterfactual models will be developed when theory does not provide sharp predictions.
This work will inform and support new applications of market design approaches to real-world intermediated matching markets. One focus will be understanding how "local" perturbations (e.g., intermediary entrance and exit) affect the "global" structure of networks; another will be the identification and reduction of rent seeking by intermediaries.
In addition to enabling novel work in applied market design, this research will promote joint work between computer scientists and economists working in the theory and practice of market design.
