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Should Buyers or Sellers Trade in a Frictional Market?

Author

Listed:
  • Shouyong Shi

    (Pennsylvania State University)

  • Alain Delacroix

    (UQAM)

Abstract

To answer the question in the title, this paper characterizes the socially efficient organization of the market with search frictions. The efficient organization depends on the relative elasticity in the supply between the two sides of the market, the costs of participating in the market and organizing trade, and the (a)symmetry in matching. We also show that the social optimum can be implemented by a realistic market equilibrium where the organizers set up trading sites to direct the other side's search. The results provide a unified explanation for why trade has often been organized by sellers in the goods market, by buyers (firms) in the labor market, and by both sides in the asset market. The analysis also sheds light on how the efficient market organization can change with innovations such as e-commerce and just-in-time production.

Suggested Citation

  • Shouyong Shi & Alain Delacroix, 2018. "Should Buyers or Sellers Trade in a Frictional Market?," 2018 Meeting Papers 254, Society for Economic Dynamics.
    • Handle: RePEc:red:sed018:254
    as

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    References listed on IDEAS

    as
    1. Dorothea K. Herreiner, 2000. "The Decision to Seek or Be Sought," Econometric Society World Congress 2000 Contributed Papers 1151, Econometric Society.
    2. 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.
    3. Galenianos, Manolis & Kircher, Philipp, 2009. "Directed search with multiple job applications," Journal of Economic Theory, Elsevier, vol. 144(2), pages 445-471, March.
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    5. Mortensen, Dale T, 1982. "Property Rights and Efficiency in Mating, Racing, and Related Games," American Economic Review, American Economic Association, vol. 72(5), pages 968-979, December.
    6. Christopher A. Pissarides, 2009. "The Unemployment Volatility Puzzle: Is Wage Stickiness the Answer?," Econometrica, Econometric Society, vol. 77(5), pages 1339-1369, September.
    7. Curtis R. Taylor, 1995. "The Long Side of the Market and the Short End of the Stick: Bargaining Power and Price Formation in Buyers', Sellers', and Balanced Markets," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 110(3), pages 837-855.
    8. James D. Montgomery, 1991. "Equilibrium Wage Dispersion and Interindustry Wage Differentials," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 106(1), pages 163-179.
    9. Delacroix, Alain & Shi, Shouyong, 2013. "Pricing and signaling with frictions," Journal of Economic Theory, Elsevier, vol. 148(4), pages 1301-1332.
    10. Burdett, Kenneth, et al, 1995. "Buyers and Sellers: Should I Stay or Should I Go?," American Economic Review, American Economic Association, vol. 85(2), pages 281-286, May.
    Full references (including those not matched with items on IDEAS)

    Citations

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    Cited by:

    1. Kennes, John & le Maire, Daniel & Roelsgaard, Sebastian T., 2020. "Equivalence of canonical matching models," Games and Economic Behavior, Elsevier, vol. 124(C), pages 169-182.
    2. Shouyong Shi, 2019. "Sequentially Mixed Search and Equilibrium Price Dispersion," 2019 Meeting Papers 322, Society for Economic Dynamics.
    3. Yujing Xu, 2022. "Unobservable investments, trade efficiency and search frictions," Post-Print hal-03848827, HAL.
    4. Yash Kanoria & Daniela Saban, 2021. "Facilitating the Search for Partners on Matching Platforms," Management Science, INFORMS, vol. 67(10), pages 5990-6029, October.
    5. Yujing Xu, 2022. "Unobservable investments, trade efficiency and search frictions," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 55(2), pages 764-799, May.
    6. Mangin, Sephorah & Julien, Benoît, 2021. "Efficiency in search and matching models: A generalized Hosios condition," Journal of Economic Theory, Elsevier, vol. 193(C).
    7. Kim, Jinhwan & Olbert, Marcel, 2022. "How does private firm disclosure affect demand for public firm equity? Evidence from the global equity market," Journal of Accounting and Economics, Elsevier, vol. 74(2).
    8. Derek Stacey, 2019. "Posted Prices, Search and Bargaining," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 33, pages 85-104, July.
    9. Wright, Randall & Xiao, Sylvia Xiaolin & Zhu, Yu, 2018. "Frictional capital reallocation I: Ex ante heterogeneity," Journal of Economic Dynamics and Control, Elsevier, vol. 89(C), pages 100-116.
    10. Michelangelo Rossi, 2019. "How Does Competition Affect Reputation Concerns? Theory and Evidence from Airbnb," CESifo Working Paper Series 7972, CESifo.

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