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On the Efficiency of Decentralized Exchange with Resale Possibilities

Author

Listed:
  • Ebbe Groes

    (Institute of Economics, University of Copenhagen)

  • Torben Tranæs

    (Institute of Economics, University of Copenhagen)

Abstract

This paper studies decentralized exchange by bilateral matching and bargaining when resale is possible. Decentralized exchange involves the risk that goods and services may be allocated inefficiently; if low valuation buyers consume while high valuation buyers do not then social welfare is reduced. If resale is possible and transaction costs negligible we would, nevertheless, expect an efficient allocation to emerge from decentralized exchange. Our analysis suggests that this depends on the nature of the commodity; if it is a consumable good (i.e., a good which is completely used up at the moment of consumption) the allocation might be inefficient, while if the commodity is a durable good (i.e., a good that yields a flow of utility over time) the allocation is efficient and uniquely determined.

Suggested Citation

  • Ebbe Groes & Torben Tranæs, 1997. "On the Efficiency of Decentralized Exchange with Resale Possibilities," CIE Discussion Papers 1997-04, University of Copenhagen. Department of Economics. Centre for Industrial Economics.
    • Handle: RePEc:kud:kuieci:1997-04
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    Cited by:

    1. Julien, Benoit & Kennes, John & King, Ian, 2006. "The Mortensen rule and efficient coordination unemployment," Economics Letters, Elsevier, vol. 90(2), pages 149-155, February.
    2. Weiye Cheny, 2018. "Optimal Mechanism Design with Resale: An Ex-Ante Price Default Model," Discussion Papers in Economics and Business 18-24, Osaka University, Graduate School of Economics.
    3. Harstad, Bård, 2016. "The market for conservation and other hostages," Journal of Economic Theory, Elsevier, vol. 166(C), pages 124-151.

    More about this item

    Keywords

    resale; decentralized trade; durable vs. consumable goods; bargaining and markets;
    All these keywords.

    JEL classification:

    • C78 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Bargaining Theory; Matching Theory

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