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How Optimism Leads to Price Discovery and Efficiency in a Dynamic Matching Market

Listed author(s):
  • Majumdar, Dipjyoti
  • Shneyerov, Art
  • Xie, Huan

Abstract We study a market search equilibrium with aggregate uncertainty, private information and heterogeneus beiefs. Traders initially start out optimistic and then update their beliefs based on their matching experience in the market, using the Bayes rule. It is shown that all separating equilibria converge to perfect competition in the limit as the time between matches tends to 0. We also establish existence of a separating equilibrium.

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File URL: http://microeconomics.ca/artyom_shneyerov/Opt_MSX.pdf
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Paper provided by Vancouver School of Economics in its series Microeconomics.ca working papers with number artyom_shneyerov-2010-32.

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Length: 41 pages
Date of creation: 23 Oct 2010
Date of revision: 26 Oct 2010
Handle: RePEc:ubc:pmicro:artyom_shneyerov-2010-32
Contact details of provider: Web page: http://www.economics.ubc.ca/

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  1. Artyom Shneyerov & Adam Chi Leung Won, 2008. "The Rate of Convergence to Perfect Competition of Matching and Bargaining Mechanisms," Discussion Papers 1467, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  2. Gale, Douglas M, 1986. "Bargaining and Competition Part II: Existence," Econometrica, Econometric Society, vol. 54(4), pages 807-818, July.
  3. Piero Gottardi & Roberto Serrano, 2002. "Market Power and Information Revelation in Dynamic Trading," Economics Working Papers 0027, Institute for Advanced Study, School of Social Science.
  4. 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.
  5. Mark Satterthwaite & Artyom Shneyerov, 2007. "Dynamic Matching, Two-Sided Incomplete Information, and Participation Costs: Existence and Convergence to Perfect Competition," Econometrica, Econometric Society, vol. 75(1), pages 155-200, 01.
  6. Alp E. Atakan, 2010. "Competitive Equilibria in Decentralized Matching with Incomplete Information," KoƧ University-TUSIAD Economic Research Forum Working Papers 1031, Koc University-TUSIAD Economic Research Forum.
  7. Nir Dagan & Roberto Serrano & Oscar Volij, 1998. "Comment on McLennan and Sonnenschein 'Sequential Bargaining as a Noncooperative Foundation for Walrasian Equilibrium'," Econometrica, Econometric Society, vol. 66(5), pages 1231-1233, September.
  8. Lauermann, Stephan, 2011. "Dynamic matching and bargaining games: A general approach," MPRA Paper 31717, University Library of Munich, Germany.
  9. Max Blouin & Roberto Serrano, 1998. "A Decentralized Market with Common Values Uncertainty: Non-Steady States," Working Papers 98-5, Brown University, Department of Economics, revised 10 Aug 1998.
  10. Shneyerov, Artyom & Wong, Adam Chi Leung, 2010. "Bilateral matching and bargaining with private information," Games and Economic Behavior, Elsevier, vol. 68(2), pages 748-762, March.
  11. Gale, Douglas M, 1986. "Bargaining and Competition Part I: Characterization," Econometrica, Econometric Society, vol. 54(4), pages 785-806, July.
  12. Wolfram Merzyn & Gabor Virag & Stephan Lauermann, 2010. "Aggregate uncertainty and learning in a search model," 2010 Meeting Papers 1235, Society for Economic Dynamics.
  13. Pietro Ortoleva, 2012. "Modeling the Change of Paradigm: Non-Bayesian Reactions to Unexpected News," American Economic Review, American Economic Association, vol. 102(6), pages 2410-2436, October.
  14. Satterthwaite, Mark & Shneyerov, Artyom, 2008. "Convergence to perfect competition of a dynamic matching and bargaining market with two-sided incomplete information and exogenous exit rate," Games and Economic Behavior, Elsevier, vol. 63(2), pages 435-467, July.
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