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Demand and Supply in a Random Matching Model

Author

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  • Klaus Kultti

    (Helsinki School of Economics and Business Administration, Department of Economics and Management Science, Helsinki, Finnland)

Abstract

The agents are matched randomly, and they are allowed to choose whether to become buyers or sellers, or which good to produce. The terms of trade as well as the allocation of the agents in different roles depend on the trading mechanism. The goods may be traded by using auctions, bargaining, or fixed prices if the seller is assumed to be able to commit to a trading mechanism. If commitment is not possible mixed mechanisms are likely to emerge. In the mixture of bargaining and auction agents bargain if the meeting is pairwise. In the mixture of posted prices and auction the good is sold at a fixed price if the meeting is pairwise. If two or more buyers meet a seller an auction ensues. Auction turns out to allocate the agents efficiently, and the mixture of bargaining and auctions least efficiently.

Suggested Citation

  • Klaus Kultti, 1999. "Demand and Supply in a Random Matching Model," Homo Oeconomicus, Institute of SocioEconomics, vol. 15, pages 483-490.
    • Handle: RePEc:hom:homoec:v:15:y:1999:p:483-490
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