Abstract

I study a one-time entry market for a single indivisible good, where buyers and sellers, privately informed regarding their valuation for the good, are randomly matched, bargain, and in the event of agreement, trade and exit the market. Each agent’s search procedure is modeled as a sequence of discrete double auctions. For each value of the discount factor, the equilibrium behavior of traders satisfies a certain property of monotonicity within each side of the market—the lower a trader’s potential surplus the tougher his market position. As discounting is removed, equilibria with Walrasian and non-Walrasian features persist, although sufficient conditions are identified to single out the Walrasian outcome.

Author Keywords: Decentralized markets; Private values asymmetric information; Pairwise meetings; Double auctions

JEL classification codes: C72; C78; D82; D83

Article Outline

1. Introduction

2. The model

3. Equilibrium, expected payoffs and trade statistics

4. Existence of equilibrium

5. A partial characterization of equilibrium behavior

6. Examples of equilibria

7. The Asymptotic results

8. Concluding remarks

Acknowledgements

References