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Bilateral trading and incomplete information: Price convergence in a small market

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journal contribution
posted on 2019-08-29, 13:15 authored by Kalyan Chatterjee, Kaustav Das
We study a model of decentralised bilateral interactions in a small market where one of the sellers has private information about her value. In addition to this seller with private information, there are two identical buyers and another seller, whose valuation is commonly known to be in between the two possible valuations of the seller with private information. We consider an infinite horizon game with simultaneous one-sided offers and simultaneous responses. We construct one particular PBE of the game and show that, as the discount factor goes to 1, prices in all transactions converge to the same value. We then show that this is the case with any stationary equilibrium of the game. That is, the asymptotic outcome is unique across all stationary equilibria.

Funding

Dr Chatterjee would also like to thank the Institute for Advanced Study, Princeton, and the Richard B. Fisher endowment for financial support of his membership of the Institute during the year 2014–2015.

History

Citation

Games and Economic Behavior, 2017, 106, pp. 89-113

Author affiliation

/Organisation/COLLEGE OF SOCIAL SCIENCES, ARTS AND HUMANITIES/School of Business

Version

  • AM (Accepted Manuscript)

Published in

Games and Economic Behavior

Publisher

Elsevier

issn

0899-8256

Copyright date

2017

Available date

2019-08-29

Publisher version

https://www.sciencedirect.com/science/article/pii/S0899825617301549?via=ihub

Language

en

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