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Dynamic Matching and Bargaining: The Role of Deadlines

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  • Sjaak Hurkens
  • Nir Vulkan

Abstract

We consider a dynamic model where traders in each period are matched randomly into pairs who then bargain about the division of a fixed surplus. When agreement is reached the traders leave the market. Traders who do not come to an agreement return next period in which they will be matched again, as long as their deadline has not expired yet. New traders enter exogenously in each period. We assume that traders within a pair know each other's deadline. We define and characterize the stationary equilibrium configurations. Traders with longer deadlines fare better than traders with short deadlines. It is shown that the heterogeneity of deadlines may cause delay. It is then shown that a centralized mechanism that controls the matching protocol, but does not interfere with the bargaining, eliminates all delay. Even though this efficient centralized mechanism is not as good for traders with long deadlines, it is shown that in a model where all traders can choose which mechanism to use, no delay will be observed.

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Bibliographic Info

Paper provided by Barcelona Graduate School of Economics in its series Working Papers with number 188.

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Date of creation: Feb 2006
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Handle: RePEc:bge:wpaper:188

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Keywords: Bargaining; deadlines; markets;

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References

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  1. Gale, Douglas M, 1986. "Bargaining and Competition Part I: Characterization," Econometrica, Econometric Society, Econometric Society, vol. 54(4), pages 785-806, July.
  2. Ching-to Albert Ma & Michael Manove, 1991. "Bargaining with Deadlines and Imperfect Player Control," Papers, Boston University - Industry Studies Programme 0007, Boston University - Industry Studies Programme.
  3. Binmore, Ken G & Herrero, M J, 1988. "Matching and Bargaining in Dynamic Markets," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 55(1), pages 17-31, January.
  4. Sakovics Jozsef, 1993. "Delay in Bargaining Games with Complete Information," Journal of Economic Theory, Elsevier, Elsevier, vol. 59(1), pages 78-95, February.
  5. Robert Shimer & Lones Smith, 2000. "Assortative Matching and Search," Econometrica, Econometric Society, Econometric Society, vol. 68(2), pages 343-370, March.
  6. Fershtman Chaim & Seidmann Daniel J., 1993. "Deadline Effects and Inefficient Delay in Bargaining with Endogenous Commitment," Journal of Economic Theory, Elsevier, Elsevier, vol. 60(2), pages 306-321, August.
  7. Ariel Rubinstein, 2010. "Perfect Equilibrium in a Bargaining Model," Levine's Working Paper Archive 252, David K. Levine.
  8. Ponsati, Clara, 1995. "The deadline effect: A theoretical note," Economics Letters, Elsevier, Elsevier, vol. 48(3-4), pages 281-285, June.
  9. Peters Michael, 1994. "Equilibrium Mechanisms in a Decentralized Market," Journal of Economic Theory, Elsevier, Elsevier, vol. 64(2), pages 390-423, December.
  10. Arial Rubinstein & Asher Wolinsky, 1985. "Equilibrium in a Market with Sequential Bargaining," Levine's Working Paper Archive 623, David K. Levine.
  11. Samuelson, L., 1988. "Disagreement In Markets With Matching And Bargaining," Papers, Pennsylvania State - Department of Economics 9-86-1, Pennsylvania State - Department of Economics.
  12. Roth, Alvin E & Murnighan, J Keith & Schoumaker, Francoise, 1988. "The Deadline Effect in Bargaining: Some Experimental Evidence," American Economic Review, American Economic Association, American Economic Association, vol. 78(4), pages 806-23, September.
  13. Samuelson, Larry, 1992. "Disagreement in Markets with Matching and Bargaining," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 59(1), pages 177-85, January.
  14. McAfee, R Preston, 1993. "Mechanism Design by Competing Sellers," Econometrica, Econometric Society, Econometric Society, vol. 61(6), pages 1281-1312, November.
  15. Mark Satterthwaite & Artyom Shneyerov, 2003. "Convergence of a Dynamic Matching and Bargaining Market with Two-sided Incomplete Information to Perfect Competition," Discussion Papers, Northwestern University, Center for Mathematical Studies in Economics and Management Science 1384, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  16. Paul Milgrom & Robert J. Weber, 1981. "A Theory of Auctions and Competitive Bidding," Discussion Papers, Northwestern University, Center for Mathematical Studies in Economics and Management Science 447R, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
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