Multilateral Matching

John William Hatfield; Scott Duke Kominers

Article | Journal of Economic Theory

Multilateral Matching

by John William Hatfield and Scott Duke Kominers

Abstract

We introduce a matching model in which agents engage in joint ventures via multilateral contracts. This approach allows us to consider production complementarities previously outside the scope of matching theory. We show analogues of the first and second welfare theorems and, when agents' utilities are concave in venture participation, show that competitive equilibria exist, correspond to stable outcomes, and yield core outcomes. Competitive equilibria exist in our setting even when externalities are present.

Keywords: matching; networks; joint ventures; stability; Competitive equilibrium; Core; Networks; Competition; Joint Ventures; Balance and Stability; Groups and Teams; Entrepreneurship;

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Hatfield, John William, and Scott Duke Kominers. "Multilateral Matching." Journal of Economic Theory 156 (March 2015): 175–206.

Markets for IPOs and debt issuances are syndicated, in the sense that a bidder who wins a contract may invite losing bidders to join a syndicate that together fulfills the contract. We show that in markets with syndication, standard intuitions from industrial organization can be reversed: Collusion may become easier as market concentration falls, and market entry may in fact facilitate collusion. In particular, price collusion can be sustained by a strategy in which firms refuse to join the syndicate of any firm that deviates from the collusive price. Our results thus can rationalize the apparently contradictory empirical facts that the market for IPO underwriting exhibits seemingly collusive pricing despite its low level of market concentration.

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