Micro and Labor

Research Interests:

Search and Matching theory

Herd behavior

Working papers:

High Price Signals High Quality (with Klaus Kultti and Tuomo Virkola)    (August 2015)

We analyze market outcomes and signaling in a setting with two sided heterogeneity and search frictions. When sellers cannot credibly communicate
quality, they may signal it with price. We find that there is a unique symmetric equilibrium satisfying the intuitive criterion. The outcome may feature
only high- or low-quality, or both types produced depending on production costs and the level of demand. In addition there may be perfect or imperfect
sorting. As an interesting result we find that profits are non-monotonous in the production cost.

Keywords: Provision of quality, pricing, signalling, directed search

JEL Classification: D8, C78

Directed search with divisible goods  (October 2016)

We study a large frictional economy where sellers choose capacities and post prices or auctions to attract buyers. The difference to earlier literature is that the
traded good is perfectly divisible and that each buyer can acquire fractional units if he is unable to secure a whole unit. We derive the equilibrium prices and capacities under constant marginal utility and confirm that equilibrium is constrained efficient. In addition we show that competition in multi-unit Vickrey auctions lead to the same measure of sellers and capacity as the planner's solution also with decreasing marginal utility. This facilitates finding equilibria as the solution to the planner's problem is easy to derive.

Keywords: Directed search, perfectly divisible goods, multi-unit auction

JEL Classification: D40, D43

Pricing and Market Structure (with Klaus Kultti)

We derive the equilibrium pricing strategies under three often observed market structures in a model with one large firm and a competitive fringe of small capacity constrained firms under uncertain demand. The pricing strategies reflect the varying levels of frictions and within location competition induced by the market structures. An implication of the complexity of the pricing strategies is that a sample of posted prices and a simple index based on these is not enough for comparing the market structures in terms of expected prices paid. Knowledge of the market structure and expected demand is needed as well.

Keywords: Firm location, market structure, firm size

JEL Classification: D43, L10, L13

Convergence of Finite Clustered Markets (with Klaus Kultti)

We demonstrate that a clustered market with a finite number of buyers and capacity constrained sellers in the same location, and with demand uncertainty, has a unique symmetric equilibrium where the sellers use mixed strategies in pricing. As the economy grows the mixed strategy and the demand uncertainty converge to those of an economy with continua of buyers and sellers. Thus, using the simplifying assumption of a continuum of agents is well founded when analyzing this market structure.

Work in progress:

Counterfeit goods and signaling in a dispersed market

Competitive non-linear pricing with congestion (with Sara Hämäläinen)

Directed Search in a Large Housing Market with Learning

Selected publications:

Peer Reviewed Publications:

Godenhielm M. and K. Kultti 2015. ”Directed Search and Endogenous Capacity,” The B.E. Journal of Theoretical Economics. Volume 15, Issue 2, Pages 211–249. (link to working paper)

Godenhielm M. and K. Kultti 2014. "Capacity Choice in a Large Market," PLoS ONE 9(8): e101766, doi:10.1371/journal.pone.0101766.

Godenhielm M. and K. Kultti 2008. "In a Herd? Herding With Costly Observation and an Unknown Number of Predecessors," Finnish Economic Papers, vol. 21(2), pages 95-103, Autumn.


Godenhielm, M., 2012. Firm Size Matters, Ph.D. Thesis, Dissertationes Oeconomicae, University of Helsinki.

Other  publications:

Godenhielm M., 2013. “Yritysten koko etsintämalleissa,” Kansantaloudellinen aikakausikirja, 109 vsk., 2/2013.

Mats Godenhielm,
Nov 17, 2015, 3:26 AM
Mats Godenhielm,
Dec 17, 2014, 7:32 AM