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Strategic Bargaining and Competitive Bidding in a Dynamic Market Equilibrium

Coles, Melvyn G and Muthoo, Abhinay (1998) 'Strategic Bargaining and Competitive Bidding in a Dynamic Market Equilibrium.' Review of Economic Studies, 65 (2). pp. 235-260. ISSN 0034-6527

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This paper extends the bargaining and matching literature, such as Rubinstein and Wolinsky (1985), by considering a new matching process. We assume that a central information agency exists, such as real estate agencies in the housing market and employment agencies (or newspapers) in the labour market, which puts traders into direct contact with each other. With heterogeneity of trader preferences, equilibrium trade is characterized by existing traders on each side of the market trying to match with the flow of new traders on the other side (since existing traders have already sampled and rejected each other). Two procedures of trade co-exist, namely a strategic bilateral bargaining process and a competitive bidding process, depending on the number of potential matches a new trader obtains. We characterize the unique symmetric Markov perfect equilibrium to this stochastic trading game.

Item Type: Article
Subjects: H Social Sciences > HB Economic Theory
Divisions: Faculty of Social Sciences
Faculty of Social Sciences > Economics, Department of
SWORD Depositor: Elements
Depositing User: Elements
Date Deposited: 04 Jan 2013 12:39
Last Modified: 18 Aug 2022 10:54

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