On the Efficiency of Decentralized Exchange with Resale Possibilities

Ebbe Groes and Torben Tranaes ()
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Ebbe Groes: Institute of Economics, University of Copenhagen

No 1997-04, CIE Discussion Papers from University of Copenhagen. Department of Economics. Centre for Industrial Economics

Abstract: This paper studies decentralized exchange by bilateral matching and bargaining when resale is possible. Decentralized exchange involves the risk that goods and services may be allocated inefficiently; if low valuation buyers consume while high valuation buyers do not then social welfare is reduced. If resale is possible and transaction costs negligible we would, nevertheless, expect an efficient allocation to emerge from decentralized exchange. Our analysis suggests that this depends on the nature of the commodity; if it is a consumable good (i.e., a good which is completely used up at the moment of consumption) the allocation might be inefficient, while if the commodity is a durable good (i.e., a good that yields a flow of utility over time) the allocation is efficient and uniquely determined.

Keywords: resale; decentralized trade; durable vs. consumable goods; bargaining and markets (search for similar items in EconPapers)
JEL-codes: C78 (search for similar items in EconPapers)
Pages: 21 pages
Date: 1997-02
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Published in: International Economic Review. May 1999; 40(2): 423-38

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