Price discovery in a matching and bargaining market with aggregate uncertainty

Artyom Shneyerov and Adam C.L. Wong

Games and Economic Behavior, 2020, vol. 124, issue C, 183-206

Abstract: We introduce aggregate uncertainty into a Rubinstein and Wolinsky (1985)-type dynamic matching and bilateral bargaining model. The market can be either in a high state, where there are more buyers than sellers, or in a low state, where there are more sellers than buyers. Traders do not know the state. They randomly meet each other and bargain by making take-it-or-leave-it offers. The only information transmitted in a meeting is the time a trader spent on the market. There are two kinds of search frictions: time discounting and exogenous exit. We find that as the search frictions vanish, the market discovers the competitive price quickly: the prices offered in equilibrium converge in expectation to the true-state Walrasian price at the rate linear in the total search friction. This rate is the same as it would be if the state were commonly known.

Keywords: Dynamic matching and bargaining; Convergence to perfect competition; Aggregate uncertainty (search for similar items in EconPapers)
JEL-codes: C73 C78 D83 (search for similar items in EconPapers)
Date: 2020
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Persistent link: https://EconPapers.repec.org/RePEc:eee:gamebe:v:124:y:2020:i:c:p:183-206

DOI: 10.1016/j.geb.2020.08.006

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