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A Decentralized Market with Common Values Uncertainty: Non-Steady States

We analyse a market where (i) trade proceeds by random and anonymous pairwise meetings with bargaining; (ii) agents are asymmetrically informed about the value of the traded good; and (iii) no new entrants are allowed once the market is open. We show that information revelation and efficiency are never obtained in equilibrium, even as discounting is removed. This holds whether the asymmetry is two-sided or one-sided. In some cases there exist equilibria where a substantial amount goes untraded. This contrasts with the earlier literature, which was based on the steady-state equilibria of a model where agents enter the market every period. Copyright 2001 by The Review of Economic Studies Limited

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Paper provided by Brown University, Department of Economics in its series Working Papers with number 98-5.

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Date of creation: 1998
Date of revision: 10 Aug 1998
Handle: RePEc:bro:econwp:98-5
Contact details of provider: Postal: Department of Economics, Brown University, Providence, RI 02912

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  1. Oved Yosha & Roberto Serrano, 1996. "Welfare analysis of a market with pairwise meetings and asymmetric information (*)," Economic Theory, Springer, vol. 8(1), pages 167-175.
  2. Wilson, Robert, 1977. "A Bidding Model of Perfect Competition," Review of Economic Studies, Wiley Blackwell, vol. 44(3), pages 511-18, October.
  3. Wolinsky, Asher, 1990. "Information Revelation in a Market with Pairwise Meetings," Econometrica, Econometric Society, vol. 58(1), pages 1-23, January.
  4. Douglas Gale, 2010. "Limit theorems for markets with sequential bargaining," Levine's Working Paper Archive 621, David K. Levine.
  5. Gale, Douglas M, 1986. "Bargaining and Competition Part I: Characterization," Econometrica, Econometric Society, vol. 54(4), pages 785-806, July.
  6. Wolfgang Pesendorfer & Jeroen M. Swinkels, 1995. "The Loser's Curse and Information Aggregation in Common Value Auctions," Discussion Papers 1147, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  7. Milgrom, Paul R, 1979. "A Convergence Theorem for Competitive Bidding with Differential Information," Econometrica, Econometric Society, vol. 47(3), pages 679-88, May.
  8. Serrano, Roberto & Yosha, Oved, 1993. "Information Revelation in a Market with Pairwise Meetings: The One Sided Information Case," Economic Theory, Springer, vol. 3(3), pages 481-99, July.
  9. Krishna, Vijay & Morgan, John, 1997. "An Analysis of the War of Attrition and the All-Pay Auction," Journal of Economic Theory, Elsevier, vol. 72(2), pages 343-362, February.
  10. Milgrom, Paul R, 1981. "Rational Expectations, Information Acquisition, and Competitive Bidding," Econometrica, Econometric Society, vol. 49(4), pages 921-43, June.
  11. Bergemann, Dirk & Valimaki, Juuso, 1996. "Learning and Strategic Pricing," Econometrica, Econometric Society, vol. 64(5), pages 1125-49, September.
  12. Rubinstein, Ariel & Wolinsky, Asher, 1985. "Equilibrium in a Market with Sequential Bargaining," Econometrica, Econometric Society, vol. 53(5), pages 1133-50, September.
  13. Rothschild, Michael, 1974. "A two-armed bandit theory of market pricing," Journal of Economic Theory, Elsevier, vol. 9(2), pages 185-202, October.
  14. Martin J. Osborne & Ariel Rubinstein, 2005. "Bargaining and Markets," Levine's Bibliography 666156000000000515, UCLA Department of Economics.
  15. Gale, Douglas M, 1986. "Bargaining and Competition Part II: Existence," Econometrica, Econometric Society, vol. 54(4), pages 807-18, July.
  16. Muthoo, Abhinay, 1993. "Sequential Bargaining and Competition," Economic Theory, Springer, vol. 3(2), pages 353-63, April.
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