Prices, delay, and the dynamics of trade

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Journal Article
Journal of Economic Theory, 2002, 104 (2), pp. 304 - 339
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We characterize the dynamics of trading patterns and market composition when trade is bilateral, finding a trading partner is costly, prices are 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. Journal of Economic Literature Classification Numbers: D40, D50. © 2002 Elsevier Science (USA).
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