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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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  19. 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, Wiley Blackwell, vol. 56(4), pages 477-98, October.
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Citations

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Cited by:
  1. Adam Wong & Artyom Shneyerov, 2007. "Bilateral Matching and Bargaining with Private Information," 2007 Meeting Papers 1032, Society for Economic Dynamics.
  2. 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.
  3. Stephan Lauermann, 2013. "Dynamic Matching and Bargaining Games: A General Approach," American Economic Review, American Economic Association, vol. 103(2), pages 663-89, April.
  4. Art Shneyerov, 2006. "Dynamic Matching with Two-sided Incomplete Information and Participation Costs," Theory workshop papers 815595000000000009, UCLA Department of Economics.
  5. Sjaak Hurkens & Nir Vulkan, 2006. "Dynamic Matching and Bargaining: The Role of Deadlines," Working Papers 188, Barcelona Graduate School of Economics.
  6. Abhinay Muthoo & Suresh Mutuswami, 2005. "Competition and Efficiency in Markets with Quality Uncertainty," Economics Discussion Papers 593, University of Essex, Department of Economics.

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