Price Discovery in a Matching and Bargaining Market with Aggregate Uncertainty

44 Pages Posted: 8 Aug 2018

See all articles by Artyom Shneyerov

Artyom Shneyerov

Concordia University, Quebec

Adam Chi Leung Wong

Lingnan University - Department of Economics

Date Written: July 15, 2018

Abstract

We introduce aggregate uncertainty into a Rubinstein and Wolinsky (1985)-type dynamic matching and bilateral bargaining model. The market can be either in a high state, where there are more buyers than sellers, or in a low state, where there are more sellers than buyers. Traders do not know the state. They randomly meet each other and bargain by making take-it-or-leave-it offers. The only information transmitted in a meeting is the time a trader spent on the market. There are two kinds of search frictions: time discounting and exogenous exit. We find that as the search frictions vanish, the market discovers the competitive price quickly: the prices offered in equilibrium converge in expectation to the true-state Walrasian price at the rate linear in the total search friction. This rate is the same as it would be if the state were commonly known.

Keywords: dynamic matching and bargaining, convergence to perfect competition, aggregate uncertainty

JEL Classification: C73, C78, D83

Suggested Citation

Shneyerov, Artyom and Wong, Chi Leung, Price Discovery in a Matching and Bargaining Market with Aggregate Uncertainty (July 15, 2018). Available at SSRN: https://ssrn.com/abstract=3217415 or http://dx.doi.org/10.2139/ssrn.3217415

Artyom Shneyerov

Concordia University, Quebec ( email )

1455 de Maisonneuve Blvd. W.
Montreal, Quebec H3G 1MB
Canada

Chi Leung Wong (Contact Author)

Lingnan University - Department of Economics ( email )

8 Castle Peak Road
Lingnan University
Hong Kong
Hong Kong

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