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Location Choice in Two-Sided Markets with Indivisible Agents

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  • Robert M. Anderson
  • Glenn Ellison
  • Drew Fudenberg

Abstract

Consider a model of location choice by two sorts of agents, called “buyers”and “sellers:”In the first period agents simultaneously choose between two identical possible locations; following this, the agents at each location play some sort of game with the other agents there. Buyers prefer locations with fewer other buyers and more sellers, and sellers have the reverse preferences. We study the set of possible equilibrium sizes for the two markets, and show that two markets of very different sizes can co-exist even if larger markets are more efficient. This extends the analysis of Ellison and Fudenberg [3] (EF), who ignored the constraint that the number of agents of each type in each market should be an integer, and instead analyzed the “quasi-equilibria”where agents are treated as infinitely divisible.

Suggested Citation

  • Robert M. Anderson & Glenn Ellison & Drew Fudenberg, 2005. "Location Choice in Two-Sided Markets with Indivisible Agents," Harvard Institute of Economic Research Working Papers 2056, Harvard - Institute of Economic Research.
  • Handle: RePEc:fth:harver:2056
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    File URL: http://www.economics.harvard.edu/pub/hier/2005/HIER2056.pdf
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    References listed on IDEAS

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    1. Grodal, Birgit, 1975. "The rate of convergence of the core for a purely competitive sequence of economies," Journal of Mathematical Economics, Elsevier, vol. 2(2), pages 171-186.
    2. Glenn Ellison & Drew Fudenberg, 2003. "Knife-Edge or Plateau: When Do Market Models Tip?," The Quarterly Journal of Economics, Oxford University Press, vol. 118(4), pages 1249-1278.
    3. Glenn Ellison & Drew Fudenberg & Markus Möbius, 2004. "Competing Auctions," Journal of the European Economic Association, MIT Press, vol. 2(1), pages 30-66, March.
    4. Dierker, Hildegard, 1975. "Equilibria and core of large economies," Journal of Mathematical Economics, Elsevier, vol. 2(2), pages 155-169.
    5. Krugman, Paul, 1991. "Increasing Returns and Economic Geography," Journal of Political Economy, University of Chicago Press, vol. 99(3), pages 483-499, June.
    6. Marco Pagano, 1989. "Trading Volume and Asset Liquidity," The Quarterly Journal of Economics, Oxford University Press, vol. 104(2), pages 255-274.
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    Cited by:

    1. Paul Belleflamme & Eric Toulemonde, 2009. "Negative Intra-Group Externalities In Two-Sided Markets," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 50(1), pages 245-272, February.
    2. Moldovanu, Benny & Sela, Aner & Shi, Xianwen, 2008. "Competing auctions with endogenous quantities," Journal of Economic Theory, Elsevier, vol. 141(1), pages 1-27, July.

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