Strategic Bargaining and Competitive Bidding in a Dynamic Market Equilibrium

Melvyn G. Coles, Abhinay Muthoo

Research output: Contribution to journalArticle

Abstract

This paper extends the bargaining and matching literature, such as Rubinstein and Wolinsky (1985), by considering a new matching process. We assume that a central information agency exists, such as real estate agencies in the housing market and employment agencies (or newspapers) in the labour market, which puts traders into direct contact with each other. With heterogeneity of trader preferences, equilibrium trade is characterized by existing traders on each side of the market trying to match with the flow of new traders on the other side (since existing traders have already sampled and rejected each other). Two procedures of trade co-exist, namely a strategic bilateral bargaining process and a competitive bidding process, depending on the number of potential matches a new trader obtains. We characterize the unique symmetric Markov perfect equilibrium to this stochastic trading game.

Original languageEnglish (US)
Pages (from-to)235-260
Number of pages26
JournalReview of Economic Studies
Volume65
Issue number2
DOIs
StatePublished - Apr 1998

ASJC Scopus subject areas

  • Economics and Econometrics

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