Two-Sided Markets: Theory and Applications

(Nobel Memorial Prize in Economics 2012) The paper provides an overview of major results in the theory of two-sided markets that brought the 2012 Nobel Memorial Prize in economics to Lloyd Shapley and Alvin Roth. We describe the celebrated Gale & Shapley deferred acceptance algorithm and Shapley & Scarf top trading cycles algorithm in applications to marriage and college admissions markets, and provide simple examples to illustrate the basic mechanics of these algorithms. We also explain how Gale & Shapley algorithm can be used to improve efficiency of college admission in Russia.