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

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Author Info
Satterthwaite, Mark
Shneyerov, Artyom

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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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Paper provided by Microeconomics.ca Website in its series Micro Theory Working Papers with number shneyerov-03-12-17-09-36-43.

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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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Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Rubinstein, Ariel & Wolinsky, Asher, 1990. "Decentralized Trading, Strategic Behaviour and the Walrasian Outcome," Review of Economic Studies, Blackwell Publishing, vol. 57(1), pages 63-78, January. [Downloadable!] (restricted)
  2. Wolinsky, Asher, 1988. "Dynamic Markets with Competitive Bidding," Review of Economic Studies, Blackwell Publishing, vol. 55(1), pages 71-84, January. [Downloadable!] (restricted)
  3. Paul Milgrom & Ilya Segal, 2002. "Envelope Theorems for Arbitrary Choice Sets," Econometrica, Econometric Society, vol. 70(2), pages 583-601, March. [Downloadable!] (restricted)
  4. 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. [Downloadable!] (restricted)
  5. Drew Fudenberg & Markus M. Mobius & Adam Szeidl, 2004. "Existence of Equilibrium in Large Double Auctions," Harvard Institute of Economic Research Working Papers 2033, Harvard - Institute of Economic Research. [Downloadable!]
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  6. Mark A. Satterthwaite, 2001. "Strategy-proofness and markets," Social Choice and Welfare, Springer, vol. 18(1), pages 37-58. [Downloadable!] (restricted)
  7. Roberto Serrano, 2000. "Decentralized Information and the Walrasian Outcome:A Pairwise Meetings Market with Private Values," Working Papers 2000-13, Brown University, Department of Economics.
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  8. Peters, Michael & Severinov, Sergei, 2003. "An Ascending Double Auction," Micro Theory Working Papers peters-03-12-16-01-57-39, Microeconomics.ca Website, revised 26 Feb 2005. [Downloadable!]
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  9. Gale, Douglas M, 1986. "Bargaining and Competition Part I: Characterization," Econometrica, Econometric Society, vol. 54(4), pages 785-806, July. [Downloadable!] (restricted)
  10. Rubinstein, Ariel & Wolinsky, Asher, 1985. "Equilibrium in a Market with Sequential Bargaining," Econometrica, Econometric Society, vol. 53(5), pages 1133-50, September. [Downloadable!] (restricted)
  11. McAfee, R Preston, 1993. "Mechanism Design by Competing Sellers," Econometrica, Econometric Society, vol. 61(6), pages 1281-1312, November. [Downloadable!] (restricted)
  12. John Rust & George Hall, 2002. "Middlemen versus Market Makers: A Theory of Competitive Exchange," NBER Working Papers 8883, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  13. Michael Peters & Sergei Severinov, 2001. "Internet Auctions with Many Traders," Working Papers peters-01-01, University of Toronto, Department of Economics. [Downloadable!]
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  14. 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. [Downloadable!] (restricted)
  15. Coles, Melvyn G & Muthoo, Abhinay, 1998. "Strategic Bargaining and Competitive Bidding in a Dynamic Market Equilibrium," Review of Economic Studies, Blackwell Publishing, vol. 65(2), pages 235-60, April. [Downloadable!] (restricted)
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  16. Dale T. Mortensen, 1979. "The Matching Process as a Non-Cooperative/Bargaining Game," Discussion Papers 384, Northwestern University, Center for Mathematical Studies in Economics and Management Science. [Downloadable!]
  17. Kultti, Klaus, 2000. "A model of random matching and price formation," European Economic Review, Elsevier, vol. 44(10), pages 1841-1856, December. [Downloadable!] (restricted)
  18. Satterthwaite, Mark A & Williams, Steven R, 1989. "The Rate of Convergence to Efficiency in the Buyer's Bid Double Auction as the Market Becomes Large," Review of Economic Studies, Blackwell Publishing, vol. 56(4), pages 477-98, October. [Downloadable!] (restricted)
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  20. Martin J. Osborne & Ariel Rubinstein, 2005. "Bargaining and Markets," Levine's Bibliography 666156000000000515, UCLA Department of Economics. [Downloadable!]
  21. 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. [Downloadable!] (restricted)
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Art Shneyerov, 2006. "Dynamic Matching with Two-sided Incomplete Information and Participation Costs," Theory workshop papers 815595000000000009, UCLA Department of Economics. [Downloadable!]
  2. 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. [Downloadable!]
  3. Sjaak Hurkensy & Nir Vulkan, 2006. "Dynamic Matching and Bargaining: The Role of Deadlines," OFRC Working Papers Series 2006fe02, Oxford Financial Research Centre. [Downloadable!]
  4. Abhinay Muthoo & Suresh Mutuswami, 2005. "Competition and Efficiency in Markets with Quality Uncertainty," Economics Discussion Papers 593, University of Essex, Department of Economics. [Downloadable!]
  5. Shneyerov, Art & Satterthwaite, Mark, 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. [Downloadable!]
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