Ex-Ante Price Commitment With Renegotiation In A Dynamic Market
AbstractThis paper studies a dynamic model of a market such as a labour market in which firms post wages and search for workers but trade may occur at a negotiated wage procedure in markets characterized by match-specific heterogeneity. We study a model of a market in which, in each time period, agents on one side (e.g., sellers) choose whether or not to post a price before they encounter agents of the opposite type. After a pair of agents have encountered each other, their match-specific values from trading with each other are realized. If a price was not posted, then the terms of trade (and whether or not it occurs) are determined by bargaining. Otherwise, depending upon the agents’ match-specific trading values, trade occurs (if it does) either on the posted price or at a renegotiated price. We analyze the symmetric Markov subgame perfect equilibria of this market game, and address a variety of issues such as the impact of market frictions on the equilibrium proportion of trades that occur at a posted price rather than at a negotiated price.
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Bibliographic InfoPaper provided by University of Warwick, Department of Economics in its series The Warwick Economics Research Paper Series (TWERPS) with number 1000.
Date of creation: 2012
Date of revision:
Match-specific heterogeneity ; Ex-ante Price Posting ; Ex-Post Mutually Beneficial Renegotiation ; Markov Subgame Perfect Equilibrium.;
Other versions of this item:
- A. Masters & A. Muthoo, 2003. "Ex Ante Price Commitment with Renegotiation in a Dynamic Market," Economics Discussion Papers 555, University of Essex, Department of Economics.
- NEP-ALL-2012-11-11 (All new papers)
- NEP-DGE-2012-11-11 (Dynamic General Equilibrium)
- NEP-MIC-2012-11-11 (Microeconomics)
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