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Decentralized Trade in a Small Market: The Possibility of Resale

Author

Listed:
  • Ebbe Hendon

    (Institute of Economics, University of Copenhagen)

  • Torben Tranaes

    (Copenhagen Business School)

Abstract

A matching and bargaining model in a market for a single good with one seller and two different buyers is analyzed under the assumption that resale is possible (buying the good does not necessarily mean consuming it). It is known that the model without resale has inefficient equilibria in which the low buyer receives the good with high probability, even as friction becomes negligible. We show that in case the good is a non-durable (i.e., it yields no interests) resale opportunities do not ensure efficiency. Whereas in case the good is durable the resale model has a unique and efficient equilibrium.

Suggested Citation

  • Ebbe Hendon & Torben Tranaes, 1995. "Decentralized Trade in a Small Market: The Possibility of Resale," Discussion Papers 95-06, University of Copenhagen. Department of Economics.
    • Handle: RePEc:kud:kuiedp:9506
    as

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