Market Culture: How Norms Governing Exploding Offers Affect Market Performance

Abstract

Many markets have organizations that influence or try to establish norms concerning when offers can be made, accepted and rejected. Examining a dozen previously studied markets suggests that markets in which transactions are made far in advance are markets in which it is acceptable for firms to make exploding offers, and unacceptable for workers to renege on commitments they make, however early. But this evidence is only suggestive, because the markets differ in many ways other than norms concerning offers. Laboratory experiments allow us to isolate the effects of exploding offers and binding acceptances. In a simple environment, in which uncertainty about applicants' quality is resolved over time, we find inefficient early contracting when firms can make exploding offers and applicants' acceptances are binding. Relaxing either of these two conditions causes matching to take place later, when more information about applicants' qualities is available, and consequently results in higher efficiency and fewer blocking pairs. This suggests that elements of market culture may play an important role in influencing market performance.

The gastroenterology fellowship Match: How it failed and why it could succeed once again

“…8 An applicant has to accept or reject such an offer before she can gather all (or sometimes any) other offers she might receive. Employers who leave offers open for even a little time, and eventually are rejected, often will find that their next choices already have accepted offers elsewhere.…”

Decentralized matching markets with endogenous salaries

“…Although f 2 needs to pay for the o¤er to be rejected, as long as the cost is less than s 2 , f 2 is better o¤ by making one in coalitional bargaining literature (Chatterjee, Dutta, Ray and Sengupta, 1993, Bloch, 1996, Okada, 1996, and Ray and Vohra, 1999), which is very di¤erent from ours. 12 If f 1 's o¤er were accepted immediately, then the state is described only by A 0 = fa 2 ; a 3 g and F 0 = ff 2 ; f 3 g. Thus, f 2 's action cannot a¤ect the outcome with Markov strategies. It might look irrelevant if a 1 holds f 1 's o¤er for one period (and obviously holding an o¤er is not a weakly dominated strategy), but it makes a big di¤erence in this (arti…cial) example.…”

“…They show that all subgame perfect equilibria are ine¢ cient due to ine¢ cient unraveling. Recently, Niederle and Roth (2003) and Niederle, Roth, and Ünver (2006) set up multiperiod incomplete information models with …xed salaries, and analyze the conditions (market cultures and demand and supply conditions, respectively) under which unraveling can occur in equilibrium and thus result in ine¢ cient outcomes. In the current paper, in contrast, we introduce neither ine¢ ciency due to early contracting nor ine¢ ciency due to exploding o¤ers.…”

“…This delay in acceptance makes a di¤erence. 12 Let us assume that only in state (F; A; (f 2 ; a 1 ); hf 1 ; a 1 ; i), f 3 moves …rst to make a zero salary o¤er to a 3 , and a 1 and a 3 accept the o¤ers. At the same time, in states (F; A; ;; hf 1 ; a 1 ; i) and (ff 2 ; f 3 g; fa 2 ; a 3 g; ;; ;), f 2 makes an s 2 o¤er to a 2 , and a 2 (and a 1 if a 1 is still there) accepts the o¤er.…”

“Almost Stable” Matchings in the Roommates Problem

“…Hence, given an sr instance that does not admit a stable matching, one may regard a matching that admits 1 blocking pair as being "more stable" than a matching that admits 10 blocking pairs, for example. This motivates the problem of finding, given an sr instance I with no stable matching, a matching in I that admits the fewest number of blocking pairs [11,2]. Such a matching is, in the sense described here, "as stable as possible".…”