45 Pages Posted: 3 Nov 2008
Date Written: September 2001
We study the impact on asset prices of illiquidity associated with search and bargaining in an economy in which agents can trade only when they find each other. Marketmakers' prices are higher and bid-ask spreads are lower if investors can find each other more easily. Prices become Walrasian as investors' or marketmakers' search intensities get large. Endogenizing search intensities yields natural welfare implications. Information can fail to be revealed through trading when search is difficult.
Suggested Citation: Suggested Citation
Duffie, Darrell and Garleanu, Nicolae and Pedersen, Lasse Heje, Valuation in Dynamic Bargaining Markets (September 2001). NYU Working Paper No. FIN-01-022. Available at SSRN: https://ssrn.com/abstract=1294490