Trade Mechanism Selection in Markets with Frictions

Gabriele Camera and Alain Delacroix

Review of Economic Dynamics, 2004, vol. 7, issue 4, 851-868

Abstract: We endogenize the trade mechanism in a search economy with many homogenous sellers and many heterogeneous buyers of unobservable type. We study how heterogeneity and the traders' continuation values -- which are endogenous -- influence the sellers' choice of trade mechanism. Sellers trade off the probability of an immediate sale against the surplus expected from it, choosing whether to trade with everyone and how quickly. In equilibrium sellers may simply target one buyer type via non-negotiable offers (price posting), or may price discriminate (haggling). We also study when haggling generates trading delays. A price setting externality arises because of a strategic complentarity in the sellers' pricing choices. (Copyright: Elsevier)

Keywords: Search; Prices; Negotiations; Asymmetric Information (search for similar items in EconPapers)
JEL-codes: C78 D4 D82 D83 (search for similar items in EconPapers)
Date: 2004
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Citations: View citations in EconPapers (26)

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DOI: 10.1016/j.red.2004.04.002

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