Fairness, Price Stickiness, and History Dependence in Decentralized Trade

Christian Korth and Stefan Napel

No 64, Working Papers from Bavarian Graduate Program in Economics (BGPE)

Abstract: The paper investigates price formation in a decentralized market with random matching. Agents are assumed to have subdued social preferences: buyers, for example, prefer a lower price to a higher one but experience reduced utility increases below a reference price which serves as a common fairness benchmark. The strategic equilibrium reflects market fundamentals, but it is markedly less sensitive to the buyer-seller ratio near the fair price benchmark. Prices may be sticky around very di erent reference levels in markets with otherwise identical fundamentals. The implied history dependence turns out to be mitigated rather than exacerbated by friction.

Keywords: random matching; price stickiness; social preferences; history dependence; reference dependence (search for similar items in EconPapers)
JEL-codes: C78 C91 D49 D63 (search for similar items in EconPapers)
Pages: 24 pages
Date: 2008-07
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Downloads: (external link)
https://www.bgpe.de/files/2023/07/064_Fairness-Pri ... entralized-Trade.pdf First version, 2008 (application/pdf)

Related works:
Chapter: Fairness, Price Stickiness, and History Dependence in Decentralized Trade (2009)
Journal Article: Fairness, price stickiness, and history dependence in decentralized trade (2009)
Working Paper: Fairness, Price Stickiness, and History Dependence in Decentralized Trade (2009)
Working Paper: Fairness, Price Stickiness, and History Dependence in Decentralized Trade (2009)
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