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Search and Bargaining in Large Markets With Homogeneous Traders

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  • Ponsati Clara

    ()
    (Institut d’Analisi Economica - CSIC)

Abstract

We study decentralized trade in dynamic markets with homogeneous, non-atomic, buyers and sellers that wish to exchange one unit. In the first part of the paper we characterize equilibrium in a bargaining model with two-sided time varying outside options. In the second part we analyze a market equilibrium model in which (i) buyers and sellers are randomly matched in pairs; (ii) each buyer-seller pair bargains over the price of a good; and (iii) each agent has the option of abandoning negotiations, in which case the value of returning to the pool of unmatched agents constitutes an outside option. The second part is therefore an application of the first part in which the values of the outside options are endogenous to the model. Conditions for uniqueness of the market equilibrium are given; when it is unique it converges to the Walrasian outcome as frictions vanish. To the extent that multiplicity of market equilibria may (under some conditions) persist as frictions are removed, the limit of some sequences of equilibrium prices may converge to non-Walrasian values.

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Article provided by De Gruyter in its journal The B.E. Journal of Theoretical Economics.

Volume (Year): 4 (2004)
Issue (Month): 1 (February)
Pages: 1-27

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Handle: RePEc:bpj:bejtec:v:contributions.4:y:2004:i:1:n:1

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  1. Bester, Helmut, 1988. "Bargaining, Search Costs and Equilibrium Price Distributions," Review of Economic Studies, Wiley Blackwell, vol. 55(2), pages 201-14, April.
  2. Arial Rubinstein & Asher Wolinsky, 1985. "Equilibrium in a Market with Sequential Bargaining," Levine's Working Paper Archive 623, David K. Levine.
  3. Martin J. Osborne & Ariel Rubinstein, 2005. "Bargaining and Markets," Levine's Bibliography 666156000000000515, UCLA Department of Economics.
  4. Muthoo, Abhinay, 1993. "Sequential Bargaining and Competition," Economic Theory, Springer, vol. 3(2), pages 353-63, April.
  5. Clara Ponsatí & József Sákovics, 2001. "Randomly available outside options in bargaining," Spanish Economic Review, Springer, vol. 3(4), pages 231-252.
  6. JÕzsef SÂkovics & Clara PonsatÎ, 1998. "Rubinstein bargaining with two-sided outside options," Economic Theory, Springer, vol. 11(3), pages 667-672.
  7. Shaked, Avner & Sutton, John, 1984. "Involuntary Unemployment as a Perfect Equilibrium in a Bargaining Model," Econometrica, Econometric Society, vol. 52(6), pages 1351-64, November.
  8. Rubinstein, Ariel & Wolinsky, Asher, 1990. "Decentralized Trading, Strategic Behaviour and the Walrasian Outcome," Review of Economic Studies, Wiley Blackwell, vol. 57(1), pages 63-78, January.
  9. Douglas Gale, 2010. "Limit theorems for markets with sequential bargaining," Levine's Working Paper Archive 621, David K. Levine.
  10. Merlo, Antonio & Wilson, Charles A, 1995. "A Stochastic Model of Sequential Bargaining with Complete Information," Econometrica, Econometric Society, vol. 63(2), pages 371-99, March.
  11. Ponsati, C. & sakovics, J., 1996. "Bargaining in a changing Environment," UFAE and IAE Working Papers 351.96, Unitat de Fonaments de l'Anàlisi Econòmica (UAB) and Institut d'Anàlisi Econòmica (CSIC).
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Cited by:
  1. Nadia Burani & Clara Ponsati, 2011. "Countervailing power? Collusion in markets with decentralized trade," Review of Economic Design, Springer, vol. 15(2), pages 91-120, June.

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