Evolutionary stability of bargaining and price posting: implications for formal and informal activities

Nejat Anbarci (), Pedro Gomis-Porqueras and Marcus Pivato

Journal of Evolutionary Economics, 2018, vol. 28, issue 2, No 9, 365-397

Abstract: Abstract In this paper we study the co-existence of two well known trading protocols, bargaining and price-posting. To do so we consider a frictional environment where buyers and sellers play price-posting and bargaining games infinitely many times. Sellers switch from one market to the other at a rate that is proportional to their payoff differentials. Given the different informational requirements associated with these two trading mechanisms, we examine their possible co-existence in the context of informal and formal markets. Other than having different trading protocols, we also consider other distinguishing features. We find a unique stable equilibrium where price-posting (formal markets) and bargaining (informal markets) co-exist. In a richer environment where both sellers and buyers can move across markets, we show that there exists a unique stable dynamic equilibrium where formal and informal activities also co-exist whenever sellers’ and buyers’ net costs of trading in the formal market have opposite signs.

Keywords: Price posting; Bargaining; Formal and informal sectors (search for similar items in EconPapers)
JEL-codes: C7 C78 D49 E26 (search for similar items in EconPapers)
Date: 2018
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Citations: View citations in EconPapers (1)

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DOI: 10.1007/s00191-017-0544-2

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