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Markets versus Negotiations: The Predominance of Centralized Markets

Author

Listed:
  • Neeman Zvika

    (Tel Aviv University, zvika@post.tau.ac.il)

  • Vulkan Nir

    (Oxford University, nir.vulkan@sbs.ox.ac.uk)

Abstract

The paper considers the consequences of competition between two widely used exchange mechanisms, a "decentralized bargaining'' market, and a "centralized'' market. In every period, members of a large heterogenous group of privately-informed traders who each wish to buy or sell one unit of some homogenous good may opt for trading through one exchange mechanism. Traders may also postpone their trade to a future period. It is shown that trade outside the centralized market completely unravels. In every strong Nash equilibrium, all trade takes place in the centralized market. No trade ever occurs through direct negotiations.

Suggested Citation

  • Neeman Zvika & Vulkan Nir, 2010. "Markets versus Negotiations: The Predominance of Centralized Markets," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 10(1), pages 1-30, February.
    • Handle: RePEc:bpj:bejtec:v:10:y:2010:i:1:n:6
    DOI: 10.2202/1935-1704.1554
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    References listed on IDEAS

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    Cited by:

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    2. Olga A. Rud & Jean Paul Rabanal, 2018. "Evolution of markets: a simulation with centralized, decentralized and posted offer formats," Journal of Evolutionary Economics, Springer, vol. 28(3), pages 667-689, August.
    3. Loertscher, Simon & Niedermayer, Andras, 2020. "Entry-deterring agency," Games and Economic Behavior, Elsevier, vol. 119(C), pages 172-188.
    4. Severinov, Sergei & Virag, Gabor, 2024. "Who wants to be an auctioneer?," Journal of Economic Theory, Elsevier, vol. 217(C).
    5. Juha Virrankoski, 2019. "A Cluster and a Search Market CanCoexist," Discussion Papers 128, Aboa Centre for Economics.
    6. repec:ehl:wpaper:66833 is not listed on IDEAS
    7. Jean Paul Rabanal & Olga A. Rabanal, 2015. "A Simulation on the Evolution of Markets: Call Market, Decentralized and Posted Offer," Working Papers 34, Peruvian Economic Association.

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