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Trade Mechanism Selection in Markets with Frictions

  • Gabriele Camera

    (Purdue University)

  • Alain Delacroix

    (Purdue University)

We endogenize the trade mechanism in a search economy with many homogenous sellers and many heterogeneous buyers of unobservable type. We study how heterogeneity and the traders' continuation values -- which are endogenous -- influence the sellers' choice of trade mechanism. Sellers trade off the probability of an immediate sale against the surplus expected from it, choosing whether to trade with everyone and how quickly. In equilibrium sellers may simply target one buyer type via non-negotiable offers (price posting), or may price discriminate (haggling). We also study when haggling generates trading delays. A price setting externality arises because of a strategic complentarity in the sellers' pricing choices. (Copyright: Elsevier)

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File URL: http://dx.doi.org/10.1016/j.red.2004.04.002
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Article provided by Elsevier for the Society for Economic Dynamics in its journal Review of Economic Dynamics.

Volume (Year): 7 (2004)
Issue (Month): 4 (October)
Pages: 851-868

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Handle: RePEc:red:issued:v:7:y:2004:i:4:p:851-868
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  1. Camera, Gabriele & Delacroix, Alain, 2003. "Trade Mechanism Selection in Markets with Frictions," Purdue University Economics Working Papers 1166, Purdue University, Department of Economics.
  2. Bester, H., 1993. "Price Commitment in Search Markets," Papers 9309, Tilburg - Center for Economic Research.
  3. Diamond, Peter A., 1971. "A model of price adjustment," Journal of Economic Theory, Elsevier, vol. 3(2), pages 156-168, June.
  4. Trejos, Alberto & Wright, Randall, 1995. "Search, Bargaining, Money, and Prices," Journal of Political Economy, University of Chicago Press, vol. 103(1), pages 118-41, February.
  5. repec:oup:restud:v:57:y:1990:i:1:p:63-78 is not listed on IDEAS
  6. Claudio Michelacci & Javier Suarez, 2006. "Incomplete Wage Posting," Journal of Political Economy, University of Chicago Press, vol. 114(6), pages 1098-1123, December.
  7. Moen, E.R., 1995. "Competitive Search Equilibrium," Memorandum 37/1995, Oslo University, Department of Economics.
  8. repec:oup:restud:v:61:y:1994:i:3:p:397-415 is not listed on IDEAS
  9. Moreno, Diego & Wooders, John, 2002. "Prices, Delay, and the Dynamics of Trade," Journal of Economic Theory, Elsevier, vol. 104(2), pages 304-339, June.
  10. 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.
  11. repec:oup:restud:v:50:y:1983:i:2:p:221-47 is not listed on IDEAS
  12. repec:oup:restud:v:67:y:2000:i:4:p:585-607 is not listed on IDEAS
  13. Wang, Ruqu, 1995. "Bargaining versus posted-price selling," European Economic Review, Elsevier, vol. 39(9), pages 1747-1764, December.
  14. Peters, Michael, 1991. "Ex Ante Price Offers in Matching Games Non-steady States," Econometrica, Econometric Society, vol. 59(5), pages 1425-54, September.
  15. Adrian Masters & Abhinay Muthoo, 2004. "Ex ante Price Commitment with Renegotation in a Dynamic Market Equilibrium," Discussion Papers 04-09, University at Albany, SUNY, Department of Economics.
  16. Shouyong Shi, 1995. "Money and Prices: A Model of Search and Bargaining," Working Papers 916, Queen's University, Department of Economics.
  17. McAfee, R Preston, 1993. "Mechanism Design by Competing Sellers," Econometrica, Econometric Society, vol. 61(6), pages 1281-1312, November.
  18. Bester, Helmut, 1993. "Bargaining versus Price Competition in Markets with Quality Uncertainty," American Economic Review, American Economic Association, vol. 83(1), pages 278-88, March.
  19. John G. Riley & Richard Zeckhauser, 1980. "Optimal Selling Strategies:," UCLA Economics Working Papers 180, UCLA Department of Economics.
  20. Kenneth Burdett & Shouyong Shi & Randall Wright, 2001. "Pricing and Matching with Frictions," Journal of Political Economy, University of Chicago Press, vol. 109(5), pages 1060-1085, October.
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