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The Rate of Convergence to Perfect Competition of a Simple Matching and Bargaining Mechanism

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  • Shneyerov, Art
  • Wong, Adam Chi Leung

Abstract

We study the steady-state of a market with inflowing cohorts of buyers and sellers who are randomly matched pairwise and bargain under private information. Two bargaining protocols are considered: take-it-or-leave-it offering and the double auction. There are frictions due to costly search and time discounting, parameterized by a single number t > 0 proportional to the waiting time until the next meeting. We study the efficiency of these mechanisms as the frictions are removed, i.e. t 0. We find that all equilibria of the take-it-or-leave-it offering mechanism converge to the Walrasian limit, at the fastest possible rate O(t) among all bargaining mechanisms. For the double auction mechanism, we find that there are equilibria that converge at the linear rate, those that converge at a slower rate or even not converge at all.

Suggested Citation

  • Shneyerov, Art & Wong, Adam Chi Leung, 2007. "The Rate of Convergence to Perfect Competition of a Simple Matching and Bargaining Mechanism," Microeconomics.ca working papers shneyerov-07-05-01-03-43-, Vancouver School of Economics, revised 01 May 2007.
    • Handle: RePEc:ubc:pmicro:shneyerov-07-05-01-03-43-25
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    File URL: http://microeconomics.ca/artyom_shneyerov/srate.pdf
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    References listed on IDEAS

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    1. 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, January.
    2. 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.
    3. Serrano, Roberto, 2002. "Decentralized information and the Walrasian outcome: a pairwise meetings market with private values," Journal of Mathematical Economics, Elsevier, vol. 38(1-2), pages 65-89, September.
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    5. Alp E. Atakan, 2006. "Competitive Equilibria in Decentralized Matching with Incomplete Information," Discussion Papers 1437, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
    6. Stephan Lauermann, 2013. "Dynamic Matching and Bargaining Games: A General Approach," American Economic Review, American Economic Association, vol. 103(2), pages 663-689, April.
    7. Gresik, Thomas A. & Satterthwaite, Mark A., 1989. "The rate at which a simple market converges to efficiency as the number of traders increases: An asymptotic result for optimal trading mechanisms," Journal of Economic Theory, Elsevier, vol. 48(1), pages 304-332, June.
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    12. Rustichini, Aldo & Satterthwaite, Mark A & Williams, Steven R, 1994. "Convergence to Efficiency in a Simple Market with Incomplete Information," Econometrica, Econometric Society, vol. 62(5), pages 1041-1063, September.
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    Cited by:

    1. 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.
    2. Edward W. Piotrowski & Jan Sladkowski & Anna Szczypinska, "undated". "Reinforcement Learning in Market Games," Departmental Working Papers 30, University of Bialtystok, Department of Theoretical Physics.

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    More about this item

    Keywords

    Matching and Bargaining; Search; Double Auctions; Foundations for Perfect Competition; Rate of Convergence;
    All these keywords.

    JEL classification:

    • C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary Games
    • C78 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Bargaining Theory; Matching Theory
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness

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