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Bargaining in dynamic markets

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  • Manea, Mihai

Abstract

We study non-stationary markets in which traders are randomly matched to bargain over the price of a heterogeneous good or the terms of a partnership. The economy consists of a continuum of players drawn from a finite set of types. Players exogenously enter the market over time and exit upon trading. At every date, matching probabilities for each pair of types are determined by the endogenous distribution of trader types in the market. The balance of bargaining power at any stage depends on variations in potential gains from trade, the inflows of new traders, the structure of agreements at future dates, and the induced frequency of trading opportunities. We establish that an equilibrium always exists. Moreover, all equilibria that lead to the same evolution of the economy are payoff equivalent. However, we show that multiple self-fulfilling expectations about the trajectory of the economy, generating distinct equilibrium dynamics and payoffs, may coexist.

Suggested Citation

  • Manea, Mihai, 2017. "Bargaining in dynamic markets," Games and Economic Behavior, Elsevier, vol. 104(C), pages 59-77.
    • Handle: RePEc:eee:gamebe:v:104:y:2017:i:c:p:59-77
    DOI: 10.1016/j.geb.2017.02.014
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    Cited by:

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    5. Talamàs, Eduard, 2019. "Price dispersion in stationary networked markets," Games and Economic Behavior, Elsevier, vol. 115(C), pages 247-264.

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    More about this item

    Keywords

    Bargaining; Decentralized non-stationary markets; Random matching; Equilibrium existence; Multiplicity; Iterated conditional dominance;
    All these keywords.

    JEL classification:

    • C78 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Bargaining Theory; Matching Theory
    • D40 - Microeconomics - - Market Structure, Pricing, and Design - - - General

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