American Economic Review: Vol. 96 No. 3 (June 2006)
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Matching and Price Competition
Bulow, Jeremy, and Jonathan Levin. 2006. "Matching and Price Competition." American Economic Review, 96(3): 652-668.
We develop a model in which firms set impersonal salary levels before matching with workers. Wages fall relative to any competitive equilibrium while profits rise almost as much, implying little inefficiency. Furthermore, the best firms gain the most from the system while wages become compressed. In light of our results, we discuss the performance of alternative institutions and the recent antitrust case against the National Resident Matching Program. (JEL D44, J41, L44)
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