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Dynamic Matching, Two-Sided Incomplete Information, and Participation Costs: Existence and Convergence to Perfect Competition

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Author Info
Mark Satterthwaite
Artyom Shneyerov

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Abstract

Consider a decentralized, dynamic market with an infinite horizon and participation costs in which both buyers and sellers have private information concerning their values for the indivisible traded good. Time is discrete, each period has length δ, and, each unit of time, continuums of new buyers and sellers consider entry. Traders whose expected utility is negative choose not to enter. Within a period each buyer is matched anonymously with a seller and each seller is matched with zero, one, or more buyers. Every seller runs a first price auction with a reservation price and, if trade occurs, both the seller and the winning buyer exit the market with their realized utility. Traders who fail to trade continue in the market to be rematched. We characterize the steady-state equilibria that are perfect Bayesian. We show that, as δ converges to zero, equilibrium prices at which trades occur converge to the Walrasian price and the realized allocations converge to the competitive allocation. We also show the existence of equilibria for δ sufficiently small, provided the discount rate is small relative to the participation costs. Copyright The Econometric Society 2007.

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File URL: http://hdl.handle.net/10.1111/j.1468-0262.2007.00735.x
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Publisher Info
Article provided by Econometric Society in its journal Econometrica.

Volume (Year): 75 (2007)
Issue (Month): 1 (01)
Pages: 155-200
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Handle: RePEc:ecm:emetrp:v:75:y:2007:i:1:p:155-200

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Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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  5. Paul R. Milgrom, 1985. "Auction Theory," Cowles Foundation Discussion Papers 779, Cowles Foundation, Yale University. [Downloadable!]
  6. Drew Fudenberg & Markus M. Mobius & Adam Szeidl, 2004. "Existence of Equilibrium in Large Double Auctions," Harvard Institute of Economic Research Working Papers 2033, Harvard - Institute of Economic Research. [Downloadable!]
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  7. Gale, Douglas M, 1986. "Bargaining and Competition Part I: Characterization," Econometrica, Econometric Society, vol. 54(4), pages 785-806, July. [Downloadable!] (restricted)
  8. Rubinstein, Ariel & Wolinsky, Asher, 1985. "Equilibrium in a Market with Sequential Bargaining," Econometrica, Econometric Society, vol. 53(5), pages 1133-50, September. [Downloadable!] (restricted)
  9. Satterthwaite, Mark & Shneyerov, Artyom, 2003. "Convergence of a Dynamic Matching and Bargaining Market with Two-sided Incomplete Information to Perfect Competition," Micro Theory Working Papers shneyerov-03-12-17-09-36-, Microeconomics.ca Website, revised 17 Dec 2003. [Downloadable!]
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  10. John Rust & George Hall, 2002. "Middlemen versus Market Makers: A Theory of Competitive Exchange," NBER Working Papers 8883, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  11. Michael Peters & Sergei Severinov, 2001. "Internet Auctions with Many Traders," Working Papers peters-01-01, University of Toronto, Department of Economics. [Downloadable!]
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  12. Rustichini, Aldo & Satterthwaite, Mark A & Williams, Steven R, 1994. "Convergence to Efficiency in a Simple Market with Incomplete Information," Econometrica, Econometric Society, vol. 62(5), pages 1041-63, September. [Downloadable!] (restricted)
  13. Mark A. Satterthwaite & Steven R. Williams, 2002. "The Optimality of a Simple Market Mechanism," Econometrica, Econometric Society, vol. 70(5), pages 1841-1863, September. [Downloadable!] (restricted)
  14. Satterthwaite, Mark A & Williams, Steven R, 1989. "The Rate of Convergence to Efficiency in the Buyer's Bid Double Auction as the Market Becomes Large," Review of Economic Studies, Blackwell Publishing, vol. 56(4), pages 477-98, October. [Downloadable!] (restricted)
  15. Gale, Douglas, 1987. "Limit theorems for markets with sequential bargaining," Journal of Economic Theory, Elsevier, vol. 43(1), pages 20-54, October. [Downloadable!] (restricted)
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  17. Serrano, Roberto, 2002. "Decentralized information and the Walrasian outcome: a pairwise meetings market with private values," Journal of Mathematical Economics, Elsevier, vol. 38(1-2), pages 65-89, September. [Downloadable!] (restricted)
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  18. Martin W Cripps & Jeroen M Swinkels, 2003. "Efficiency of Large Double Auctions," Levine's Working Paper Archive 666156000000000329, UCLA Department of Economics. [Downloadable!]
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  19. Gianni De Fraja & Jozsef Sakovics, 2001. "Walras Retrouve: Decentralized Trading Mechanisms and the Competitive Price," Journal of Political Economy, University of Chicago Press, vol. 109(4), pages 842-863, August. [Downloadable!] (restricted)
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Stephan Lauermann, 2008. "Price Setting in a Decentralized Market and the Competitive Outcome," Working Paper Series of the Max Planck Institute for Research on Collective Goods 2008_06, Max Planck Institute for Research on Collective Goods. [Downloadable!]
  2. Shneyerov, Art & Wong, Adam Chi Leung, 2007. "The Rate of Convergence to Perfect Competition of a Simple Matching and Bargaining Mechanism," Micro Theory Working Papers shneyerov-07-05-01-03-43-, Microeconomics.ca Website, revised 01 May 2007. [Downloadable!]
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