 Optimal market thicknessSimon Loertscher, Ellen V. Muir and Peter G. Taylor Journal of Economic Theory, 2022, vol. 200, issue C Abstract: Traders that arrive over time give rise to a dynamic tradeoff between the benefits of increasing gains from trade by accumulating traders and the associated cost of delay due to discounting. We analyze this tradeoff in a dynamic bilateral trade model in which a buyer and seller arrive in each period and draw their types independently from commonly known distributions. With symmetric binary types, the optimal market clearing policy can be implemented with posted prices and ex post budget balance, provided that it is optimal to store at least one trader. While optimally thick markets involve storing a small number of traders, their performance is nevertheless close to that of a large market. In particular, irrespective of the type distributions, two-thirds of the gains from increased market thickness can be achieved by storing just one trader. Keywords: Market thickness; Dynamic mechanisms; Posted-price mechanisms; Two-sided private information; (Im)possibility of efficient trade (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:jetheo:v:200:y:2022:i:c:s0022053121002003 DOI: 10.1016/j.jet.2021.105383 Access Statistics for this article Journal of Economic Theory is currently edited by A. Lizzeri and K. Shell More articles in Journal of Economic Theory from Elsevier |
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