Cooperation, Competition, and Welfare in a Matching Market


Bester, Helmut (FU Berlin and HU Berlin)
Sákovics, József (University of the Balearic Islands and University of Edinburgh)


We investigate the welfare effect of increasing competition in an anonymous two-sided matching market, where matched pairs play an infinitely repeated Pris- oner’s Dilemma. Higher matching efficiency is usually considered detrimental as it creates stronger incentives for defection. We point out, however, that a reduction in matching frictions also increases welfare because more agents find themselves in a cooperative relationship. We characterize the conditions for which increasing competition increases overall welfare. In particular, this is always the case when the incentives for defection are high.


cooperation; prisoner’s dilemma; competition; welfare; matching; trust building


C72; C73; C78; D6


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Cooperation, Competition, and Welfare in a Matching Market
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