Advertised Prices in Decentralized Markets

Derek Stacey

No 1011, 2015 Meeting Papers from Society for Economic Dynamics

Abstract: A model of a decentralized market is developed that features search frictions, advertised prices and bargaining. Sellers can post ask prices to attract buyers through a process of directed search, but ex post there is the possibility of renegotiation. Similarly, buyers can advertise negotiable bid prices to attract sellers. Even though transaction prices often differ from quoted prices, advertised bid and ask prices play a crucial role in directing search and reducing trading frictions. The features and predictions of the model align well with aspects of the secondary market for transferable taxicab license plates in Toronto. This provides a useful and unique context for studying the relationships between advertised and actual prices in a decentralized market.

Date: 2015
New Economics Papers: this item is included in nep-com, nep-dge and nep-mst
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