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Bilateral trade with apositional traders

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  • Galavotti, Stefano

Abstract

We study the standard model of bilateral trade under incomplete information dropping the assumption that traders know on which side of the market they are. We consider two mechanisms that differ only in the number of offers that an agent can submit. These mechanisms are realistic and they are ex post individually rational (i.e. regret free), while the usual mechanisms proposed in the literature satisfy the weaker requirement of interim individual rationality. Properties of the Bayesian equilibria are described for the general case. For the case where valuations are uniformly distributed in the unit square, two types of equilibria are derived for each mechanism and their efficiency properties are analyzed. As expected, the equilibria under the double offer mechanism are less inefficient than those under the single offer mechanism.

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Bibliographic Info

Article provided by Elsevier in its journal Research in Economics.

Volume (Year): 63 (2009)
Issue (Month): 3 (September)
Pages: 172-188

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Handle: RePEc:eee:reecon:v:63:y:2009:i:3:p:172-188

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Web page: http://www.elsevier.com/locate/inca/622941

Related research

Keywords: Bilateral trade Double auction;

References

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  1. Leininger, W. & Linhart, P. B. & Radner, R., 1989. "Equilibria of the sealed-bid mechanism for bargaining with incomplete information," Journal of Economic Theory, Elsevier, vol. 48(1), pages 63-106, June.
  2. David McAdams, 2006. "Monotone Equilibrium in Multi-Unit Auctions," Review of Economic Studies, Oxford University Press, vol. 73(4), pages 1039-1056.
  3. 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.
  4. Peter Cramton & Robert Gibbons & Paul Klemperer, 1987. "Dissolving a Partnership Efficiently," Papers of Peter Cramton 87econ, University of Maryland, Department of Economics - Peter Cramton, revised 09 Jun 1998.
  5. Myerson, Roger B. & Satterthwaite, Mark A., 1983. "Efficient mechanisms for bilateral trading," Journal of Economic Theory, Elsevier, vol. 29(2), pages 265-281, April.
  6. Chwe, Michael Suk-Young, 1989. "The discrete bid first auction," Economics Letters, Elsevier, vol. 31(4), pages 303-306, December.
  7. Makowski Louis & Mezzetti Claudio, 1994. "Bayesian and Weakly Robust First Best Mechanisms: Characterizations," Journal of Economic Theory, Elsevier, vol. 64(2), pages 500-519, December.
  8. Steven R. Williams, 1999. "A characterization of efficient, bayesian incentive compatible mechanisms," Economic Theory, Springer, vol. 14(1), pages 155-180.
  9. Satterthwaite, Mark A. & Williams, Steven R., 1989. "Bilateral trade with the sealed bid k-double auction: Existence and efficiency," Journal of Economic Theory, Elsevier, vol. 48(1), pages 107-133, June.
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Cited by:
  1. Stefano Galavotti & Nozomu Muto & Daisuke Oyama, 2011. "On efficient partnership dissolution under ex post individual rationality," Economic Theory, Springer, vol. 48(1), pages 87-123, September.

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