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Dynamic Matching and Bargaining Games: A General Approach

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  • Max Planck Institute

    (Bonn)

  • Stephan Lauermann

Abstract

Dynamic matching and bargaining games provide models of decentralized markets with trading frictions. A central objective of the literature is to investigate how equilibrium outcomes depend on the size of the frictions. In particular, will the outcome become efficient when frictions become small? Existing specifications of such games give different answers. To investigate what causes these differences, we identify four simple conditions on trading outcomes. We show that for every game which satisfies these conditions, the equilibrium outcome must become efficient when frictions are small. We demonstrate that our conditions hold under several specifications in the literature, suggesting a common cause behind their convergence results. These specifications include, for example, the recent contribution by Satterthwaite and Shneyerov (Econometrica, 2007). For those specifications in the literature for which outcomes do not become efficient, we show exactly which of our conditions do not hold. These specifications include, for example, Serrano (2002, JME) and DeFraja and Sakovics (2001, JPE).

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Bibliographic Info

Paper provided by Society for Economic Dynamics in its series 2007 Meeting Papers with number 269.

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Date of creation: 2007
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Handle: RePEc:red:sed007:269

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References

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  1. Serrano, R. & Yosha, O., 1995. "Decentralized Information and the Walrasian Outcome : A Pairwise Meetings Market with Private Values," Papers 26-95, Tel Aviv.
  2. Kunimoto, Takashi & Serrano, Roberto, 2004. "Bargaining and competition revisited," Journal of Economic Theory, Elsevier, vol. 115(1), pages 78-88, March.
  3. Satterthwaite, Mark & Shneyerov, Art, 2004. "Dynamic Matching,Two-sided Incomplete Information, and Participation Costs: Existence and Convergence to Perfect Competition," Micro Theory Working Papers shneyerov-04-12-17-02-54-, Microeconomics.ca Website, revised 17 Dec 2004.
  4. Nir Dagan & Roberto Serrano & Oscar Volij, 1996. "Bargaining, Coalitions, and Competition," Economic theory and game theory 003, Oscar Volij, revised Jul 1998.
  5. Gale, Douglas M, 1986. "Bargaining and Competition Part I: Characterization," Econometrica, Econometric Society, vol. 54(4), pages 785-806, July.
  6. M Ali Khan, 2007. "Perfect Competition," Microeconomics Working Papers 22207, East Asian Bureau of Economic Research.
  7. Douglas Gale, 2010. "Limit theorems for markets with sequential bargaining," Levine's Working Paper Archive 621, David K. Levine.
  8. Thomas Tröger & Georg Nöldeke, 2009. "Matching Heterogeneous Agents with a Linear Search Technology," Bonn Econ Discussion Papers bgse1_2009, University of Bonn, Germany.
  9. Moreno, Diego & Wooders, John, . "Prices, delay, and the dynamics of trade," Open Access publications from Universidad Carlos III de Madrid info:hdl:10016/4395, Universidad Carlos III de Madrid.
  10. Diamond, Peter A., 1971. "A model of price adjustment," Journal of Economic Theory, Elsevier, vol. 3(2), pages 156-168, June.
  11. Gianni De Fraja & Jozsef Sakovics, 2001. "Walras Retrouve: Decentralized Trading Mechanisms and the Competitive Price," Journal of Political Economy, University of Chicago Press, vol. 109(4), pages 842-863, August.
  12. Alp E. Atakan, 2010. "Efficient Dynamic Matching with Costly Search," Koç University-TUSIAD Economic Research Forum Working Papers 1030, Koc University-TUSIAD Economic Research Forum.
  13. Shneyerov, Artyom & Wong, Adam Chi Leung, 2010. "The rate of convergence to perfect competition of matching and bargaining mechanisms," Journal of Economic Theory, Elsevier, vol. 145(3), pages 1164-1187, May.
  14. Dale T. Mortensen & Randall Wright, 2002. "Competitive Pricing and Efficiency in Search Equilibrium," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 43(1), pages 1-20, February.
  15. Lauermann, Stephan, 2012. "Asymmetric information in bilateral trade and in markets: An inversion result," Journal of Economic Theory, Elsevier, vol. 147(5), pages 1969-1997.
  16. Feldman, Allan M, 1973. "Bilateral Trading, Processes, Pairwise Optimality, and Pareto Optimality," Review of Economic Studies, Wiley Blackwell, vol. 40(4), pages 463-73, October.
  17. Arial Rubinstein & Asher Wolinsky, 1990. "Decentralized Trading, Strategic Behaviour and the Walrasian Outcome," Levine's Working Paper Archive 622, David K. Levine.
  18. Douglas Gale & Hamid Sabourian, 2005. "Complexity and Competition," Econometrica, Econometric Society, vol. 73(3), pages 739-769, 05.
  19. McAfee, R Preston, 1993. "Mechanism Design by Competing Sellers," Econometrica, Econometric Society, vol. 61(6), pages 1281-1312, November.
  20. Stephan Lauermann, 2008. "When Less Information is Good for Efficiency: Private Information in Bilateral Trade and in Markets," 2008 Meeting Papers 419, Society for Economic Dynamics.
  21. Arial Rubinstein & Asher Wolinsky, 1985. "Equilibrium in a Market with Sequential Bargaining," Levine's Working Paper Archive 623, David K. Levine.
  22. Stephan Lauermann, 2008. "Price Setting in a Decentralized Market and the Competitive Outcome," Working Paper Series of the Max Planck Institute for Research on Collective Goods 2008_06, Max Planck Institute for Research on Collective Goods.
  23. Wolinsky, Asher, 1987. "Information Revelation in a Market with Pairwise Meetings," The Warwick Economics Research Paper Series (TWERPS) 284, University of Warwick, Department of Economics.
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Citations

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Cited by:
  1. Shneyerov, Art & Wong, Adam Chi Leung, 2007. "Bilateral Matching and Bargaining with Private Information," Micro Theory Working Papers shneyerov-07-05-01-03-38-, Microeconomics.ca Website, revised 01 May 2007.
  2. Kircher, Philipp, 2009. "Efficiency of simultaneous search," Open Access publications from London School of Economics and Political Science http://eprints.lse.ac.uk/, London School of Economics and Political Science.
  3. Jan Eeckhout & Philipp Kircher, 2008. "Sorting and Decentralized Price Competition," PIER Working Paper Archive 08-020, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania.
  4. Artyom Shneyerov & Adam Chi Leung Won, 2008. "The Rate of Convergence to Perfect Competition of Matching and Bargaining Mechanisms," Discussion Papers 1467, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  5. Philipp Kircher, 2007. "Efficiency of Directed Search," 2007 Meeting Papers 93, Society for Economic Dynamics.
  6. Klaus Kultti, 2010. "Inefficiency caused by random matching and heterogeneity," Portuguese Economic Journal, Springer, vol. 9(1), pages 19-28, April.
  7. Alp Atakan & Mehmet Ekmekci, 2012. "Auctions, Actions, and the Failure of Information Aggregation," Discussion Papers 1553, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  8. Jean Guillaume Forand & Vikram Maheshri, 2012. "(De)Regulation and Market Thickness," Working Papers 1202, University of Waterloo, Department of Economics, revised Oct 2012.
  9. Stephan Lauermann & Georg Nöldeke, 2012. "Stable Marriages and Search Frictions," Working papers 2012/10, Faculty of Business and Economics - University of Basel.
  10. Stephan Lauermann, 2008. "Price Setting in a Decentralized Market and the Competitive Outcome," Working Paper Series of the Max Planck Institute for Research on Collective Goods 2008_06, Max Planck Institute for Research on Collective Goods.
  11. Wolfram Merzyn & Gabor Virag & Stephan Lauermann, 2010. "Aggregate uncertainty and learning in a search model," 2010 Meeting Papers 1235, Society for Economic Dynamics.

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