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Trade Mechanism Selection in Markets with Frictions

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Author Info
Gabriele Camera (Purdue University)
Alain Delacroix (Purdue University)

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Abstract

We endogenize the trade mechanism in a search economy with many homogenous sellers and many heterogeneous buyers of unobservable type. We study how heterogeneity and the traders' continuation values -- which are endogenous -- influence the sellers' choice of trade mechanism. Sellers trade off the probability of an immediate sale against the surplus expected from it, choosing whether to trade with everyone and how quickly. In equilibrium sellers may simply target one buyer type via non-negotiable offers (price posting), or may price discriminate (haggling). We also study when haggling generates trading delays. A price setting externality arises because of a strategic complentarity in the sellers' pricing choices. (Copyright: Elsevier)

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File URL: http://dx.doi.org/10.1016/j.red.2004.04.002
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Publisher Info
Article provided by Elsevier for the Society for Economic Dynamics in its journal Review of Economic Dynamics.

Volume (Year): 7 (2004)
Issue (Month): 4 (October)
Pages: 851-868
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Handle: RePEc:red:issued:v:7:y:2004:i:4:p:851-868

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Related research
Keywords: Search; Prices; Negotiations; Asymmetric Information;

Other versions of this item:

Find related papers by JEL classification:
C78 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Bargaining Theory; Matching Theory
D4 - Microeconomics - - Market Structure and Pricing
D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information
D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search, Learning, and Information

References listed on IDEAS
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. Rubinstein, Ariel & Wolinsky, Asher, 1990. "Decentralized Trading, Strategic Behaviour and the Walrasian Outcome," Review of Economic Studies, Blackwell Publishing, vol. 57(1), pages 63-78, January. [Downloadable!] (restricted)
  2. Moreno, Diego & Wooders, John, 2002. "Prices, Delay, and the Dynamics of Trade," Journal of Economic Theory, Elsevier, vol. 104(2), pages 304-339, June. [Downloadable!] (restricted)
  3. Kenneth Burdett & Shouyong Shi & Randall Wright, 2001. "Pricing and Matching with Frictions," Journal of Political Economy, University of Chicago Press, vol. 109(5), pages 1060-1085, October. [Downloadable!] (restricted)
  4. Bester, Helmut, 1994. "Price commitment in search markets," Journal of Economic Behavior & Organization, Elsevier, vol. 25(1), pages 109-120, September. [Downloadable!] (restricted)
    Other versions:
  5. Wang, Ruqu, 1995. "Bargaining versus posted-price selling," European Economic Review, Elsevier, vol. 39(9), pages 1747-1764, December. [Downloadable!] (restricted)
  6. Bester, Helmut, 1993. "Bargaining versus Price Competition in Markets with Quality Uncertainty," American Economic Review, American Economic Association, vol. 83(1), pages 278-88, March. [Downloadable!] (restricted)
  7. Adrian Masters & Abhinay Muthoo, 2000. "Ex-Ante Price Commitment with Renegotiation in a Dynamic Market Equilibrium," ILR working papers 056, Institute for Labour Research. [Downloadable!]
    Other versions:
  8. Michelacci, Claudio & Suarez, Javier, 2002. "Incomplete Wage Posting," CEPR Discussion Papers 3658, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
    Other versions:
  9. Shi Shougong, 1995. "Money and Prices: A Model of Search and Bargaining," Journal of Economic Theory, Elsevier, vol. 67(2), pages 467-496, December. [Downloadable!] (restricted)
    Other versions:
  10. Mortensen, Dale T & Pissarides, Christopher A, 1994. "Job Creation and Job Destruction in the Theory of Unemployment," Review of Economic Studies, Blackwell Publishing, vol. 61(3), pages 397-415, July. [Downloadable!] (restricted)
    Other versions:
  11. Trejos, Alberto & Wright, Randall, 1995. "Search, Bargaining, Money, and Prices," Journal of Political Economy, University of Chicago Press, vol. 103(1), pages 118-41, February. [Downloadable!] (restricted)
  12. Peters, Michael, 1991. "Ex Ante Price Offers in Matching Games Non-steady States," Econometrica, Econometric Society, vol. 59(5), pages 1425-54, September. [Downloadable!] (restricted)
  13. McAfee, R Preston, 1993. "Mechanism Design by Competing Sellers," Econometrica, Econometric Society, vol. 61(6), pages 1281-1312, November. [Downloadable!] (restricted)
  14. Moen, Espen R, 1997. "Competitive Search Equilibrium," Journal of Political Economy, University of Chicago Press, vol. 105(2), pages 385-411, April.
    Other versions:
  15. John G. Riley & Richard Zeckhauser, 1980. "Optimal Selling Strategies:," UCLA Economics Working Papers 180, UCLA Department of Economics. [Downloadable!]
  16. Acemoglu, Daron & Shimer, Robert, 2000. "Wage and Technology Dispersion," Review of Economic Studies, Blackwell Publishing, vol. 67(4), pages 585-607, October.
  17. Diamond, Peter A., 1971. "A model of price adjustment," Journal of Economic Theory, Elsevier, vol. 3(2), pages 156-168, June. [Downloadable!] (restricted)
  18. Fudenberg, Drew & Tirole, Jean, 1983. "Sequential Bargaining with Incomplete Information," Review of Economic Studies, Blackwell Publishing, vol. 50(2), pages 221-47, April. [Downloadable!] (restricted)
  19. Camera, Gabriele & Delacroix, Alain, 2003. "Trade Mechanism Selection in Markets with Frictions," Purdue University Economics Working Papers 1166, Purdue University, Department of Economics. [Downloadable!]
    Other versions:
Full references

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. Gabriele Camera & Alain Delacroix, 2004. "Trade Mechanism Selection in Markets with Frictions," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 7(4), pages 851-868, October. [Downloadable!] (restricted)
    Other versions:
  2. David Gill & John Thanassoulis, 2007. "Too Many Bargainers Spoil The Broth: The Impact of Bargaining on Markets with Price Takers," Economics Series Working Papers 329, University of Oxford, Department of Economics. [Downloadable!]
  3. Huberto M. Ennis, 2004. "Search, money, and inflation under private information," Discussion Paper / Institute for Empirical Macroeconomics 142, Federal Reserve Bank of Minneapolis. [Downloadable!]
    Other versions:
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