Gender-based price discrimination in matching markets☆

a r t i c l e i n f o This paper develops a new model to analyze price discrimination in matching markets where agents have private information about their respective qualities. On the basis of signals (car, clothing, club membership, etc.) purchased from profit-maximizing firms, men and women form beliefs about each other's qualities. The matching must then be stable in the following sense: there cannot be a man and woman who are unmatched and who both believe they would be better off if they were matched with one another. The model enables an analysis of the impact of third-degree (or gender-based) price discrimination on welfare. When third-degree price discrimination is not feasible, the cost of eliciting private information is higher but a monopoly intermediary may have stronger incentives to implement an efficient allocation. I show that gender-based price discrimination is more likely to have a positive impact the more symmetric the matching environment is. Men and women use signals to inform potential partners of their relevant characteristics. Such signals include premarital investment (education, culture, etc.), conspicuous consumption (expensive cars or clothing), membership to selective clubs or dating services, and more. In some of these examples, signals are provided by profit-maximizing firms. 1 This raises several questions: Do private firms have an incentive to provide an effective number of signals? What is their impact on the matching of men and women? Do current regulations (like a ban on gender-based price discrimination) have an impact on the provision of signals and, ultimately, on the matching of men and women? In order to answer these questions, I will build a model in which men and women invests in costly signaling prior to matching. Based on their choice of signals, men and women form beliefs about their potential partners' types. The model departs from the existing literature in that the matching depends explicitly on these beliefs. In particular, I assume that, in equilibrium, the matching must be (pairwise) stable according to the beliefs: there cannot be a man and a woman who both believe they would be better off being matched to one another compared to their current assignment. The advantage of this approach is that there is no need to model precisely how the matching occurs following signal-ing decisions. Existing models in the literature on price discrimination in matching markets rely on a very precise description of how the matching …