A Decentralized Market with Common Values Uncertainty: Non-Steady States

Abstract

We analyse a market where (i) trade proceeds by random and anonymous pairwise meetings with bargaining; (ii) agents are asymmetrically informed about the value of the traded good; and (iii) no new entrants are allowed once the market is open. We show that information revelation and efficiency never obtain in equilibrium, even as discounting is removed. This holds whether the asymmetry is two-sided or one-sided. In some cases there exist equilibria where a substantial amount goes untraded. This contrasts with the earlier literature, which was based on the steadystate equilibria of a model where agents enter the market every period.

Decentralized information and the Walrasian outcome: a pairwise meetings market with private values

“…The arguments adapt results from the literature on existence in anonymous games and follow closely those in Blouin and Serrano (2001). Proposition 1.…”

“…The proof is a variation of Blouin and Serrano (2001), which follows Mas-Colell (1984), itself a reformulation of Schmeidler (1973).…”

“…2 On the other hand, we have the pioneering work of Wolinsky (1990) (W in the sequel) in studying a pairwise meetings market with common values asymmetric information. 3 W and Blouin and Serrano (2001) (BS in the sequel) establish that, for the case of common values uncertainty, there seems to be little room for a positive result of information revelation and efficiency of decentralized markets based on bilateral trade. In these papers, as frictions are removed (as δ → 1), the quality of matches deteriorates: the informed agents leave the market early and the equilibrium outcome is driven mainly by noise.…”

Equilibrium Blocking in Large Quasilinear Economies

“…Our findings therefore complement other results in the literature, directly grounded on non-cooperative game-theoretic models, in terms of providing foundations/criticisms of rational expectations equilibria in studies of specific procedures. These include Holden and Subrahmanyan (1992) and Foster and Viswanathan (1996) in modelsá la Kyle (1985); Dubey, Geanakoplos and Shubik (1987) and Forges and Minelli (1997) in market gamesá la Shapley and Shubik (1977);Milgrom (1981), Pesendorfer and Swinkels (1997), Reny and Perry (2006) and Peters and Severinov (2008) in auctions;and Wolinsky (1990), Blouin and Serrano (2001) and Gottardi and Serrano (2005) in matching& bargaining and related models. The latter paper also includes a detailed description of the relevant issues in these and other papers.…”

The Relative Contributions of Private Information Sharing and Public Information Releases to Information Aggregation

“…For example, in over-the-counter markets, agents learn from the bids of other agents in privately held auctions. Wolinsky (1990), Blouin and Serrano (2001), Duffie and Manso (2007), Duffie, Giroux, and Manso (2008), and Golosov, Lorenzoni, and Tsyvinski (2008) study information percolation in these markets. Word-of-mouth communication, studied for example by Banerjee and Fudenberg (2004), is another form of learning through private interactions.…”