 EX-ANTE PRICE COMMITMENT WITH RENEGOTIATION IN A DYNAMIC MARKETAdrian Masters and Abhinay Muthoo The Warwick Economics Research Paper Series (TWERPS) from University of Warwick, Department of Economics Abstract: This paper studies a dynamic model of a market such as a labour market in which firms post wages and search for workers but trade may occur at a negotiated wage procedure in markets characterized by match-specific heterogeneity. We study a model of a market in which, in each time period, agents on one side (e.g., sellers) choose whether or not to post a price before they encounter agents of the opposite type. After a pair of agents have encountered each other, their match-specific values from trading with each other are realized. If a price was not posted, then the terms of trade (and whether or not it occurs) are determined by bargaining. Otherwise, depending upon the agents’ match-specific trading values, trade occurs (if it does) either on the posted price or at a renegotiated price. We analyze the symmetric Markov subgame perfect equilibria of this market game, and address a variety of issues such as the impact of market frictions on the equilibrium proportion of trades that occur at a posted price rather than at a negotiated price. Keywords: Match-specific heterogeneity; Ex-ante Price Posting; Ex-Post Mutually Beneficial Renegotiation; Markov Subgame Perfect Equilibrium. (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:wrk:warwec:1000 Access Statistics for this paper More papers in The Warwick Economics Research Paper Series (TWERPS) from University of Warwick, Department of Economics Contact information at EDIRC. |
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