Strategic Bargaining and Competitive Bidding in a Dynamic Market Equilibrium
This paper extends the bargaining and matching literature, such as Rubinstein and Wolinsky (1985), by considering a new matching process. The authors assume that a central information agency exists, such as real estate agencies in the housing market and employment agencies (or newspapers) in the labor market, which puts traders into direct contact with each other. With heterogeneity of trader preference, equilibrium trade is characterized by existing traders on each side of the market trying to match with the flow of new traders on the other side (since existing traders have already sampled and rejected each other). Two procedures of trade co-exist, namely a strategic bilateral bargaining process and a competitive bidding process, depending on the number of potential matches a new trader obtains. The authors characterize the unique symmetric Markov perfect equilibrium to this stochastic trading game. Copyright 1998 by The Review of Economic Studies Limited.
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Volume (Year): 65 (1998)
Issue (Month): 2 (April)
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