Ex-ante price commitment with renegotiation in a dynamic market
Masters, Adrian, 1960- and Muthoo, Abhinay (2012) Ex-ante price commitment with renegotiation in a dynamic market. Working Paper. Coventry: Economics Department, University of Warwick. (Warwick economics research paper series (TWERPS), Vol.2012).
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This paper studies a dynamic model of a market such as a labour market in which ﬁrms post wages and search for workers but trade may occur at a negotiated wage procedure in markets characterized by match-speciﬁc heterogeneity. We study a model of a market in which, in each time period, agents on one side (e.g., sellers) choose whether or not to post a price before they encounter agents of the opposite type. After a pair of agents have encountered each other, their match-speciﬁc values from trading with each other are realized. If a price was not posted, then the terms of trade (and whether or not it occurs) are determined by bargaining. Otherwise, depending upon the agents’ match-speciﬁc trading values, trade occurs (if it does) either on the posted price or at a renegotiated price. We analyze the symmetric Markov subgame perfect equilibria of this market game, and address a variety of issues such as the impact of market frictions on the equilibrium proportion of trades that occur at a posted price rather than at a negotiated price.
|Item Type:||Working or Discussion Paper (Working Paper)|
|Subjects:||H Social Sciences > HF Commerce|
|Divisions:||Faculty of Social Sciences > Economics|
|Library of Congress Subject Headings (LCSH):||Markets -- Econometric models|
|Series Name:||Warwick economics research paper series (TWERPS)|
|Publisher:||Economics Department, University of Warwick|
|Place of Publication:||Coventry|
|Date:||5 November 2012|
|Number of Pages:||24|
|Status:||Not Peer Reviewed|
|Access rights to Published version:||Open Access|
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