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Dynamic Matching and Bargaining Games: A General Approach

  • Max Planck Institute


  • Stephan Lauermann

Dynamic matching and bargaining games provide models of decentralized markets with trading frictions. A central objective of the literature is to investigate how equilibrium outcomes depend on the size of the frictions. In particular, will the outcome become efficient when frictions become small? Existing specifications of such games give different answers. To investigate what causes these differences, we identify four simple conditions on trading outcomes. We show that for every game which satisfies these conditions, the equilibrium outcome must become efficient when frictions are small. We demonstrate that our conditions hold under several specifications in the literature, suggesting a common cause behind their convergence results. These specifications include, for example, the recent contribution by Satterthwaite and Shneyerov (Econometrica, 2007). For those specifications in the literature for which outcomes do not become efficient, we show exactly which of our conditions do not hold. These specifications include, for example, Serrano (2002, JME) and DeFraja and Sakovics (2001, JPE).

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Paper provided by Society for Economic Dynamics in its series 2007 Meeting Papers with number 269.

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Date of creation: 2007
Date of revision:
Handle: RePEc:red:sed007:269
Contact details of provider: Postal: Society for Economic Dynamics Marina Azzimonti Department of Economics Stonybrook University 10 Nicolls Road Stonybrook NY 11790 USA
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  1. Nir Dagan & Roberto Serrano & Oscar Volij, 2000. "Bargaining, coalitions and competition," Economic Theory, Springer, vol. 15(2), pages 279-296, 03.
  2. Gianni De Fraja & Jozsef Sakovics, 1999. "Walras Retrouve: Decentralized Trading Mechanisms and the Competitive Price," ESE Discussion Papers 36, Edinburgh School of Economics, University of Edinburgh.
  3. Gale,Douglas, 2000. "Strategic Foundations of General Equilibrium," Cambridge Books, Cambridge University Press, number 9780521644105, October.
  4. Alp E. Atakan, 2010. "Efficient Dynamic Matching with Costly Search," Koç University-TUSIAD Economic Research Forum Working Papers 1030, Koc University-TUSIAD Economic Research Forum.
  5. Kunimoto, Takashi & Serrano, Roberto, 2004. "Bargaining and competition revisited," Journal of Economic Theory, Elsevier, vol. 115(1), pages 78-88, March.
  6. Rubinstein, Ariel & Wolinsky, Asher, 1985. "Equilibrium in a Market with Sequential Bargaining," Econometrica, Econometric Society, vol. 53(5), pages 1133-50, September.
  7. Serrano, R. & Yosha, O., 1995. "Decentralized Information and the Walrasian Outcome : A Pairwise Meetings Market with Private Values," Papers 26-95, Tel Aviv.
  8. Stephan Lauermann, 2008. "Price Setting in a Decentralized Market and the Competitive Outcome," Working Paper Series of the Max Planck Institute for Research on Collective Goods 2008_06, Max Planck Institute for Research on Collective Goods.
  9. Wolinsky, Asher, 1987. "Information Revelation in a Market with Pairwise Meetings," The Warwick Economics Research Paper Series (TWERPS) 284, University of Warwick, Department of Economics.
  10. McLennan, Andrew & Sonnenschein, Hugo, 1991. "Sequential Bargaining as a Noncooperative Foundation for Walrasian Equilibrium," Econometrica, Econometric Society, vol. 59(5), pages 1395-1424, September.
  11. McAfee, R Preston, 1993. "Mechanism Design by Competing Sellers," Econometrica, Econometric Society, vol. 61(6), pages 1281-1312, November.
  12. Gale, Douglas, 1987. "Limit theorems for markets with sequential bargaining," Journal of Economic Theory, Elsevier, vol. 43(1), pages 20-54, October.
  13. Moreno, Diego & Wooders, John, 2002. "Prices, Delay, and the Dynamics of Trade," Journal of Economic Theory, Elsevier, vol. 104(2), pages 304-339, June.
  14. Satterthwaite, Mark & Shneyerov, Artyom, 2003. "Convergence of a Dynamic Matching and Bargaining Market with Two-sided Incomplete Information to Perfect Competition," working papers shneyerov-03-12-17-09-36-, Vancouver School of Economics, revised 17 Dec 2003.
  15. Mas-Colell, Andreu & Whinston, Michael D. & Green, Jerry R., 1995. "Microeconomic Theory," OUP Catalogue, Oxford University Press, number 9780195102680.
  16. Gale, Douglas M, 1986. "Bargaining and Competition Part I: Characterization," Econometrica, Econometric Society, vol. 54(4), pages 785-806, July.
  17. Adam Wong & Artyom Shneyerov, 2007. "Bilateral Matching and Bargaining with Private Information," 2007 Meeting Papers 1032, Society for Economic Dynamics.
  18. Shneyerov, Artyom & Wong, Adam Chi Leung, 2010. "The rate of convergence to perfect competition of matching and bargaining mechanisms," Journal of Economic Theory, Elsevier, vol. 145(3), pages 1164-1187, May.
  19. M Ali Khan, 2007. "Perfect Competition," Microeconomics Working Papers 22207, East Asian Bureau of Economic Research.
  20. Feldman, Allan M, 1973. "Bilateral Trading, Processes, Pairwise Optimality, and Pareto Optimality," Review of Economic Studies, Wiley Blackwell, vol. 40(4), pages 463-73, October.
  21. Arial Rubinstein & Asher Wolinsky, 1990. "Decentralized Trading, Strategic Behaviour and the Walrasian Outcome," Levine's Working Paper Archive 622, David K. Levine.
  22. Dale T. Mortensen & Randall Wright, 2002. "Competitive Pricing and Efficiency in Search Equilibrium," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 43(1), pages 1-20, February.
  23. Thomas Tröger & Georg Nöldeke, 2009. "Matching Heterogeneous Agents with a Linear Search Technology," Bonn Econ Discussion Papers bgse1_2009, University of Bonn, Germany.
  24. Diamond, Peter A., 1971. "A model of price adjustment," Journal of Economic Theory, Elsevier, vol. 3(2), pages 156-168, June.
  25. Lauermann, Stephan, 2012. "Asymmetric information in bilateral trade and in markets: An inversion result," Journal of Economic Theory, Elsevier, vol. 147(5), pages 1969-1997.
  26. Stephan Lauermann, 2008. "When Less Information is Good for Efficiency: Private Information in Bilateral Trade and in Markets," 2008 Meeting Papers 419, Society for Economic Dynamics.
  27. Douglas Gale & Hamid Sabourian, 2005. "Complexity and Competition," Econometrica, Econometric Society, vol. 73(3), pages 739-769, 05.
  28. Satterthwaite, Mark & Shneyerov, Art, 2004. "Dynamic Matching,Two-sided Incomplete Information, and Participation Costs: Existence and Convergence to Perfect Competition," working papers shneyerov-04-12-17-02-54-, Vancouver School of Economics, revised 17 Dec 2004.
  29. Gale, Douglas M, 1986. "Bargaining and Competition Part II: Existence," Econometrica, Econometric Society, vol. 54(4), pages 807-18, July.
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