Matching through position auctions

This paper uses a mechanism design framework to characterize how an intermediary can design profit-maximizing matching markets when agents have private information about their quality. When match surpluses are supermodular, sufficient conditions are provided that ensure positive assortative matching is profit maximizing. Under these conditions, two-sided position auctions are characterized that can implement the optimal match and payments, but increasing, pure-strategy equilibria can fail to exist if agents only pay when they receive a partner. Restrictions on the matchmaker’s ability to price discriminate are shown to increase inefficiency and potentially shift the burden of price discrimination onto a single side. JEL Classification Codes: D44, C78, D85