Prices, delay, and the dynamics of trade

Academic Press Inc Elsevier Science
Publication Type:
Journal Article
Journal Of Economic Theory, 2002, 104 (2), pp. 304 - 339
Issue Date:
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We characterize the dynamics of trading patterns and market composition when trade is bilateral, finding a trading pat trier is costly, prices arc determined by bargaining, and preferences are private information. We show that equilibrium is inefficient and exhibits delay as sellers price discriminate between buyers with different values. As frictions vanish, transaction prices are asymptotically competitive and the welfare loss of inefficient trading approaches zero. even though the trading patterns continue to be inefficient and delay persists.
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