Micro and Labor

Research Interests:

Search and Matching theory

Herd behavior

Link to my Google Scholar page

Working papers:

Signalling and sorting with heterogeneous buyers and sellers (with Klaus Kultti and Tuomo Virkola)    (March 2017)

We analyse a market with buyers and sellers that is characterized by search frictions and asymmetric information. The buyers have heterogeneous valuations. Each seller can produce a high-quality or a low-quality good. Quality is not observable to the buyers who have to infer it from the prices. In equilibrium high-quality sellers signal quality with a price that is higher than under perfect information. This has two effects. First, it makes production of high-quality goods more attractive. Second, it also makes high-valuation buyers worse-off, directing part of them to low-quality sellers. This induces fewer sellers to produce high quality. While it is not immediately clear which effect dominates, we show that all sellers do better under asymmetric information than under perfect information.

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

JEL Classification: D8, C78 

Directed search with divisible goods  (December 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. Under decreasing marginal utilities fixed prices are no longer constrained efficient unlike trading mechanisms that are pay-off equivalent to multi-unit Vickrey auctions.

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

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,
Sep 5, 2017, 5:34 AM
Mats Godenhielm,
Nov 17, 2015, 3:26 AM
Mats Godenhielm,
Aug 31, 2017, 5:38 AM
Mats Godenhielm,
Dec 17, 2014, 7:32 AM