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Convergence of a Dynamic Matching and Bargaining Market with Two-sided Incomplete Information to Perfect Competition

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  • Satterthwaite, Mark
  • Shneyerov, Artyom

Abstract

Consider a decentralized, dynamic market with an infinite horizon in which both buyers and sellers have private information concerning their values for the indivisible traded good. Time is discrete, each period has length ä, and each unit of time a large number of new buyers and sellers enter the market to trade. Within a period each buyer is matched with a seller and each seller is matched with zero, one, or more buyers. Every seller runs a first price auction with a reservation price and, if trade occurs, both the seller and winning buyer exit the market with their realized utility. Traders who fail to trade either continue in the market to be rematched or become discouraged with probability äµ (µ is the discouragement rate) and exit with zero utility. We characterize the steady-state, perfect Bayesian equilibria as ä becomes small and the market–in effect– becomes large. We show that, as ä converges to zero, equilibrium prices at which trades occur converge to the Walrasian price and the realized allocations converge to the competitive allocation.

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Bibliographic Info

Paper provided by Vancouver School of Economics in its series Microeconomics.ca working papers with number shneyerov-03-12-17-09-36-43.

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Length: 0 pages
Date of creation: 17 Dec 2003
Date of revision: 17 Dec 2003
Handle: RePEc:ubc:pmicro:shneyerov-03-12-17-09-36-43

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Web page: http://www.economics.ubc.ca/

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  1. Rustichini, Aldo & Satterthwaite, Mark A & Williams, Steven R, 1994. "Convergence to Efficiency in a Simple Market with Incomplete Information," Econometrica, Econometric Society, vol. 62(5), pages 1041-63, September.
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Citations

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Cited by:
  1. Max Planck Institute & Stephan Lauermann, 2007. "Dynamic Matching and Bargaining Games: A General Approach," 2007 Meeting Papers 269, Society for Economic Dynamics.
  2. Sjaak Hurkens & Nir Vulkan, 2006. "Dynamic Matching and Bargaining: The Role of Deadlines," Working Papers 188, Barcelona Graduate School of Economics.
  3. Abhinay Muthoo & Suresh Mutuswami, 2005. "Competition and Efficiency in Markets with Quality Uncertainty," Economics Discussion Papers 593, University of Essex, Department of Economics.
  4. Art Shneyerov, 2006. "Dynamic Matching with Two-sided Incomplete Information and Participation Costs," Theory workshop papers 815595000000000009, UCLA Department of Economics.
  5. Shneyerov, Artyom & Wong, Adam Chi Leung, 2010. "Bilateral matching and bargaining with private information," Games and Economic Behavior, Elsevier, vol. 68(2), pages 748-762, March.
  6. 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.
  7. Sjaak Hurkens & Nir Vulkan, 2006. "Dynamic Matching and Bargaining: The Role of Deadlines," UFAE and IAE Working Papers 660.06, Unitat de Fonaments de l'Anàlisi Econòmica (UAB) and Institut d'Anàlisi Econòmica (CSIC), revised 19 Apr 2006.

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