Trade Mechanism Selection in Markets with Frictions

24 Pages Posted: 21 Dec 2014

See all articles by Gabriele Camera

Gabriele Camera

Chapman University - Economic Science Institute; University of Bologna - Dept. of Economics

Alain Delacroix

University of Quebec at Montreal (UQAM)

Date Written: December 18, 2003

Abstract

We endogenize the trade mechanism in a search economy with many homogenous sellers and many heterogenous buyers of unobservable type. We study how heterogeneity and the traders' continuation values - which are endogenous - influence the sellers' choice of trade mechanism. Sellers trade off the probability of an immediate sale against the surplus expected from it, choosing whether to trade with everyone and how quickly. In equilibrium sellers may simply target one buyer type via non-negotiable offers (price posting), or may price discriminate (haggling). We also study when haggling generates trading delays. A price setting externality arises because of a strategic complementarity in the sellers' pricing choices.

Keywords: Search, Prices, Negotiations, Asymmetric Information

JEL Classification: C78, D4, D82, D83

Suggested Citation

Camera, Gabriele and Delacroix, Alain, Trade Mechanism Selection in Markets with Frictions (December 18, 2003). Review of Economic Dynamics, Vol. 7, No. 4, 2004. Available at SSRN: https://ssrn.com/abstract=2540699

Gabriele Camera (Contact Author)

Chapman University - Economic Science Institute ( email )

Orange, CA 92866
United States

HOME PAGE: http://www1.chapman.edu/~camera/

University of Bologna - Dept. of Economics ( email )

Strada Maggiore 45
Bologna, 40125
Italy

Alain Delacroix

University of Quebec at Montreal (UQAM) ( email )

PB 8888 Station DownTown
Succursale Centre Ville
Montreal, Quebec H3C3P8
Canada

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