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Dynamic Matching,Two-sided Incomplete Information, and Participation Costs: Existence and Convergence to Perfect Competition

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  • Satterthwaite, Mark
  • Shneyerov, Art

Abstract

Consider a decentralized, dynamic market with an infinite horizon and participation costs in which both buyers and sellers have private information concerning their values for the indivisible traded good. Time is discrete, each period has length δ, and each unit of time continuums of new buyers and sellers consider entry. Traders whose expected utility is negative choose not to enter. Within a period each buyer is matched anonymously 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 continue in the market to be rematched. We characterize the steady-state equilibria that satisfy a subgame perfection criterion. We show that, as δ converges to zero, equilibrium prices at which trades occur converge to the Walrasian price and the realized allocations converge to the competitive allocation. We also show existence of equilibria for δ sufficiently small.

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Bibliographic Info

Paper provided by Vancouver School of Economics in its series Microeconomics.ca working papers with number shneyerov-04-12-17-02-54-18.

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Length: 0 pages
Date of creation: 17 Dec 2004
Date of revision: 17 Dec 2004
Handle: RePEc:ubc:pmicro:shneyerov-04-12-17-02-54-18

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

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  1. Mark A. Satterthwaite & Steven R. Williams, 2002. "The Optimality of a Simple Market Mechanism," Econometrica, Econometric Society, vol. 70(5), pages 1841-1863, September.
  2. Milgrom,Paul, 2004. "Putting Auction Theory to Work," Cambridge Books, Cambridge University Press, number 9780521536721, November.
  3. Gianni De Fraja & Jozsef Sakovics, 2004. "Walras Retrouve: Decentralized Trading Mechanisms and the Competitive Price," ESE Discussion Papers 36, Edinburgh School of Economics, University of Edinburgh.
  4. 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.
  5. Arial Rubinstein & Asher Wolinsky, 1990. "Decentralized Trading, Strategic Behaviour and the Walrasian Outcome," Levine's Working Paper Archive 622, David K. Levine.
  6. John Rust & George Hall, 2002. "Middlemen versus Market Makers: A Theory of Competitive Exchange," NBER Working Papers 8883, National Bureau of Economic Research, Inc.
  7. Paul Milgrom & Ilya Segal, 2002. "Envelope Theorems for Arbitrary Choice Sets," Econometrica, Econometric Society, vol. 70(2), pages 583-601, March.
  8. Gale, Douglas M, 1986. "Bargaining and Competition Part I: Characterization," Econometrica, Econometric Society, vol. 54(4), pages 785-806, July.
  9. Arial Rubinstein & Asher Wolinsky, 1985. "Equilibrium in a Market with Sequential Bargaining," Levine's Working Paper Archive 623, David K. Levine.
  10. Wolinsky, Asher, 1988. "Dynamic Markets with Competitive Bidding," Review of Economic Studies, Wiley Blackwell, vol. 55(1), pages 71-84, January.
  11. Douglas Gale, 2010. "Limit theorems for markets with sequential bargaining," Levine's Working Paper Archive 621, David K. Levine.
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