Competitive Equilibria in Decentralized Matching with Incomplete Information

Alp E. Atakan

No 1437, Discussion Papers from Northwestern University, Center for Mathematical Studies in Economics and Management Science

Abstract: This paper shows that all perfect Bayesian equilibria of a decentralized dynamic matching market with two-sided incomplete information of independent private values variety converge to competitive equilibria. Each buyer wants to purchase a bundle of heterogeneous, indivisible goods and each seller owns one unit of a heterogeneous indivisible good (as in Kelso and Crawford (1982) or Gul and Stacchetti (1999)). Buyer preferences and endowments as well as seller costs are private information. Agents engage in costly search and meet randomly. The terms of trade are determined through bilateral bargaining between buyers and sellers. The paper considers a market in steady state. It is shown that as frictions, i.e., discounting and fixed costs of search become small, all equilibria of the market game converge to perfectly competitive equilibria.

Keywords: Bargaining; Search; Matching (search for similar items in EconPapers)
JEL-codes: C73 C78 D83 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-gth
Date: 2006-11
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