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Prices, Delay, and the Dynamics of Trade

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  • Moreno, Diego
  • Wooders, John

Abstract

We characterize the dynamics of trading patterns and market composition when trade is bilateral, finding a trading partner is costly, prices are determined by bargaining, and preferences are private information. We show that equilibrium is inefficient and exhibits delay as sellers price discriminate between buyers with different values. As frictions vanish, transaction prices are asymptotically competitive and the welfare loss of inefficient trading approaches zero, even though the trading patterns continue to be inefficient and delay persists.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Economic Theory.

Volume (Year): 104 (2002)
Issue (Month): 2 (June)
Pages: 304-339

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Handle: RePEc:eee:jetheo:v:104:y:2002:i:2:p:304-339

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Web page: http://www.elsevier.com/locate/inca/622869

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  1. Wolinsky, Asher, 1990. "Information Revelation in a Market with Pairwise Meetings," Econometrica, Econometric Society, vol. 58(1), pages 1-23, January.
  2. Sattinger, Michael, 1995. "Search and the Efficient Assignment of Workers to Jobs," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 36(2), pages 283-302, May.
  3. Peters, Michael, 1991. "Ex Ante Price Offers in Matching Games Non-steady States," Econometrica, Econometric Society, vol. 59(5), pages 1425-54, September.
  4. Rubinstein, Ariel & Wolinsky, Asher, 1985. "Equilibrium in a Market with Sequential Bargaining," Econometrica, Econometric Society, vol. 53(5), pages 1133-50, September.
  5. Hart, Oliver D & Tirole, Jean, 1988. "Contract Renegotiation and Coasian Dynamics," Review of Economic Studies, Wiley Blackwell, vol. 55(4), pages 509-40, October.
  6. Varian, Hal R, 1980. "A Model of Sales," American Economic Review, American Economic Association, vol. 70(4), pages 651-59, September.
  7. Oved Yosha & Roberto Serrano, 1996. "Welfare analysis of a market with pairwise meetings and asymmetric information (*)," Economic Theory, Springer, vol. 8(1), pages 167-175.
  8. Samuelson, Larry, 1992. "Disagreement in Markets with Matching and Bargaining," Review of Economic Studies, Wiley Blackwell, vol. 59(1), pages 177-85, January.
  9. Douglas Gale, 2010. "Limit theorems for markets with sequential bargaining," Levine's Working Paper Archive 621, David K. Levine.
  10. Binmore, Ken G & Herrero, M J, 1988. "Matching and Bargaining in Dynamic Markets," Review of Economic Studies, Wiley Blackwell, vol. 55(1), pages 17-31, January.
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