Multiple equilibria in bargaining models of decentralized trade (*)

Charles E. Hyde
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Charles E. Hyde: Department of Economics, University of Melbourne, Parkville, Melbourne, Victoria 3052, AUSTRALIA

Economic Theory, 1997, vol. 9, issue 2, 283-307

Abstract: A market in which population size is endogenously determined, is modeled. Buyers and sellers are randomly matched upon entering the market, whereupon they engage in non-cooperative bilateral bargaining. It is shown that general matching technologies and heterogeneity of buyer or seller populations often result in multiple market equilibria. Up to four equilibria can occur and the equilibria can always be ranked according to population size. Under some conditions all equilibria can also be Pareto ranked. The set of equilibria depends on the relative population sizes of different types of potential entrant, market entry costs, and the degree of differentiation between agents on the same side of the market.

Date: 1997
Note: Received: August 1, 1994; revised version July 31, 1995
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