Seller Competition by Mechanism Design
AbstractIn the market game presented here, sellers offer trade mechanisms to buyers, and buyers randomize over the sellers they visit. The distribution of buyers across sellers is endogenous and depends on all of the transaction opportunities existing in the market. Sellers choose from a broad class of trade mechanisms; the only constraints imposed on mechanisms is that they are direct, incentive compatible, and anonymous. In the (subgame perfect) equilibrium of this market, sellers hold auctions with an efficient reserve price but charge an entry fee. The entry fee depends on the number of buyers and sellers, the distribution of buyer valuations, and the buyer cost of entering the market. As the size of the market increases, the entry fee decreases and vanishes in the limit. The model sheds light on the endogenous formation of trading institutions in decentralized markets.
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Bibliographic InfoPaper provided by University Library of Munich, Germany in its series MPRA Paper with number 9348.
Date of creation: 23 Jun 2008
Date of revision:
competition; mechanism design; auctions;
Other versions of this item:
- D44 - Microeconomics - - Market Structure and Pricing - - - Auctions
- D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
This paper has been announced in the following NEP Reports:
- NEP-ALL-2008-07-05 (All new papers)
- NEP-COM-2008-07-05 (Industrial Competition)
- NEP-CTA-2008-07-05 (Contract Theory & Applications)
- NEP-MIC-2008-07-05 (Microeconomics)
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