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The rate of convergence to perfect competition of matching and bargaining mechanisms

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  • Shneyerov, Artyom
  • Wong, Adam Chi Leung

Abstract

We study the steady state of a market with incoming cohorts of buyers and sellers who are matched pairwise and bargain under private information. A friction parameter is [tau], the length of the time period until the next meeting. We provide a necessary and sufficient condition for the convergence of mechanism outcomes to perfect competition at the linear rate in [tau], which is shown to be the fastest possible among all bargaining mechanisms. The condition requires that buyers and sellers always retain some bargaining power. The bargaining mechanisms that satisfy this condition are called nonvanishing bargaining power (NBP) mechanisms. Simple random proposer take-it-or-leave-it protocols are NBP, while k-double auctions (k-DA) are not. We find that k-DAs have equilibria that converge to perfect competition at a linear rate, converge at a slower rate or even do not converge at all.

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Bibliographic Info

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

Volume (Year): 145 (2010)
Issue (Month): 3 (May)
Pages: 1164-1187

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Handle: RePEc:eee:jetheo:v:145:y:2010:i:3:p:1164-1187

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

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Keywords: Matching and bargaining Search Double auctions Foundations for perfect competition Rate of convergence;

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Citations

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Cited by:
  1. Adam Wong & Artyom Shneyerov, 2007. "Bilateral Matching and Bargaining with Private Information," 2007 Meeting Papers 1032, Society for Economic Dynamics.
  2. Lauermann, Stephan, 2011. "Dynamic matching and bargaining games: A general approach," MPRA Paper 31717, University Library of Munich, Germany.
  3. Klaus Kultti, 2010. "Inefficiency caused by random matching and heterogeneity," Portuguese Economic Journal, Springer, vol. 9(1), pages 19-28, April.
  4. Dipjyoti Majumdar & Artyom Shneyerov & Huan Xie, 2010. "How Optimism Leads to Price Discovery and Efficiency in a Dynamic Matching Market," Working Papers 10004, Concordia University, Department of Economics.
  5. Shneyerov, Artyom & Wong, Adam Chi Leung, 2011. "The role of private information in dynamic matching and bargaining: Can it be good for efficiency?," Economics Letters, Elsevier, vol. 112(1), pages 128-131, July.

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