Market Inefficiency, Entry Order and Coordination

Klaus Kultti () and Yi Zheng ()
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Yi Zheng: University of Helsinki

SN Operations Research Forum, 2022, vol. 3, issue 3, 1-22

Abstract: Abstract The causes of market inefficiency are many. We suggest an additional cause — buyers’ random entry order. In a market where identical sellers compete for buyers of heterogeneous valuations, first come first served is the norm. Since all buyers choose the cheapest available good, a low-valuation buyer who enters the market late may find the remaining goods unaffordable, which causes markets not to clear. We therefore propose a coordination solution to the market inefficiency problem. We find that in a market where all the high-valuation buyers enter first and all the low-valuation buyers enter afterwards, the market clears effectively. Moreover, we find the inefficiency arising from buyers’ entry order becomes less of a problem in larger economies and vanishes in the limit.

Keywords: Market efficiency; Coordination; Random entry (search for similar items in EconPapers)
JEL-codes: D47 L11 (search for similar items in EconPapers)
Date: 2022
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DOI: 10.1007/s43069-022-00158-4

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