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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Abstract

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
Volume:	Vol.2012
Number:	No.1000
Number of Pages:	24
Status:	Not Peer Reviewed
Publication Status:	Published
Access rights to Published version:	Open Access
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URI:	http://wrap.warwick.ac.uk/id/eprint/51489

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