Bilateral matching and bargaining with private information

Abstract

We study equilibria of a dynamic matching and bargaining game (DMBG) with twosided private information bilateral bargaining. The model is a private information replica of Mortensen and Wright (2002). There are two kinds of frictions: time discounting and explicit search costs. A simple necessary and sufficient condition on parameters for existence of a nontrivial equilibrium is obtained. This condition is the same regardless whether the information is private or not. In addition, it is shown that when the discount rate is sufficiently small, the equilibrium is unique and has the property that every meeting results in trade.

Inefficiency caused by random matching and heterogeneity

“…This hints that reducing the costs of entry may actually decrease the gains from trade in markets with frictions. Similar kinds of results are found in Atakan (2008) and Shneyerov and Wong (2008a) but it should be borne in mind that they focus on limit economies.…”

“…In the case I study, private information leads to inefficiency like in Myerson and Satterthwaite (1983) since the model is static and all the issues that arise from dynamics are missing. Shneyerov and Wong (2008a) provide a necessary and sufficient condition in terms of the search cost for the existence of equilibrium in a dynamic matching market with private information and pairwise bargaining. They also find that under some conditions private information may contribute to the efficiency of the markets.…”

Asymmetric information in bilateral trade and in markets: An inversion result

“…Non-competitive limit outcomes have also been found in [23,5,24,19]. The sources of the persistence of a non-competitive outcome with small frictions are different from the current model.…”

“…The cloning assumption implies that the feasibility constraints are endogenous; see [14]. Shneyerov and Wong [24] include a costly entry stage; that is, new traders must choose whether they want to incur some costs to enter the stock and become active. 17 They show that the market can "break down" even when frictions are small.…”

Dynamic matching and bargaining with heterogeneous deadlines

“…Mortensen and Wright (2002),Satterthwaite and Shneyerov (2007), andShneyerov and Wong (2010b) also allow for distributions of buyer's valuations and seller's costs in a dynamic matching and bargaining model, but their main focus is on the convergence of equilibria of such model to Walrasian equilibria as frictions (such as transaction costs) disappear.…”