Bilateral trading and incomplete information: Price convergence in a small market (working paper)
Chatterjee, K; Das, K
Date: 28 October 2016
Working Paper
Abstract
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 informed seller, there are two identical buyers and another seller, whose valuation is commonly known to be in between the two possible valuations of the informed seller. We ...
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 informed seller, there are two identical buyers and another seller, whose valuation is commonly known to be in between the two possible valuations of the informed seller. We consider an infinite horizon game with simultaneous one-sided offers and simultaneous responses. We characterise one 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.
Economics
Faculty of Environment, Science and Economy
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