Evolutionary stability of bargaining and price posting: implications for formal and informal activities

Abstract

In this paper we study the coexistence of two well known trading protocols, bargaining and price-posting. To do so we consider a frictional environment where buyers and sellers play price-posting and bargaining games infinitely many times. Sellers switch from one market to the other at a rate that is proportional to their payoff differentials. Given the different informational requirements associated with these two trading mechanisms, we examine their possible coexistence in the context of informal and formal markets. Other than having different trading protocols, we also consider other distinguishing features. We find a unique stable equilibrium where price-posting (formal markets) and bargaining (informal markets) co-exist. In a richer environment where both sellers and buyers can move across markets, we show that there exists a unique stable dynamic equilibrium where formal and informal activities also co-exist whenever sellers' and buyers' net costs of trading in the formal market have opposite signs.

Small-scale Farming and Access to Market: Challenges and Opportunities in South Africa

“…Agricultural initiatives need to consider a new, modern, highly capitalized agricultural system, as well as the creation of a more competitive smallholder agricultural (Beinart and Delius 2018). There is a need to close the gap between the small-scale farming sector and market access where the seller can publicly advertise their prices and their lo-cations rather than trading through mutual bargaining (Anbarci et al 2018).…”