Seller Competition by Mechanism Design

Damian Damianov

MPRA Paper from University Library of Munich, Germany

Abstract: In the market game presented here, sellers offer trade mechanisms to buyers, and buyers randomize over the sellers they visit. The distribution of buyers across sellers is endogenous and depends on all of the transaction opportunities existing in the market. Sellers choose from a broad class of trade mechanisms; the only constraints imposed on mechanisms is that they are direct, incentive compatible, and anonymous. In the (subgame perfect) equilibrium of this market, sellers hold auctions with an efficient reserve price but charge an entry fee. The entry fee depends on the number of buyers and sellers, the distribution of buyer valuations, and the buyer cost of entering the market. As the size of the market increases, the entry fee decreases and vanishes in the limit. The model sheds light on the endogenous formation of trading institutions in decentralized markets.

Keywords: competition; mechanism design; auctions (search for similar items in EconPapers)
JEL-codes: D44 D82 (search for similar items in EconPapers)
Date: 2008-06-23
New Economics Papers: this item is included in nep-com, nep-cta and nep-mic
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Related works:
Journal Article: Seller competition by mechanism design (2012)
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