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Timeshare Exchange Mechanisms

Ross School of Business, University of Michigan, 701 Tappan Street, Ann Arbor, Michigan 48109
Ross School of Business, University of Michigan, 701 Tappan Street, Ann Arbor, Michigan 48109
yuwz{at}umich.edu
aradhna{at}umich.edu

This paper focuses on the timeshare industry, where members own timeshare "weeks" and can exchange these weeks among themselves without a medium of exchange (such as money). Timeshare exchanges allow for the weeks to be redistributed among members to better match their preferences and thus increase efficiency. As such, the problem falls within the domain of matching problems, which have recently gained much attention in academia. We demonstrate theoretically that the two major timeshare exchange mechanisms used currently (deposit-first mechanism and request-first mechanism) can cause efficiency loss. We propose an alternate exchange mechanism, the top trading cycles chains and spacebank (TTCCS) mechanism, and show that it can increase the efficiency of the timeshare exchange market because TTCCS is Pareto efficient, individually rational, and strategyproof. We test the three exchange mechanisms in laboratory experiments where we simulate exchange markets with networked "timeshare members." The results of the experiments are robust across four different environments that we construct and strongly support our theory. The research focuses on an industry not studied earlier within academia and extends theoretical work on mechanism design to cases where supply of resources is dynamic, but resources can be stored.

Key Words: mechanism design; timeshare; experimental economics; efficiency; simulated market
History: Received: September 10, 2004;

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