Endogenous Two-Sided Markets with Repeated Transactions

Arnold Polanski, Eyal Winter

Research output: Contribution to journalArticle

4 Citations (Scopus)

Abstract

We consider homogeneous two-sided markets, in which connected buyer-seller pairs bargain and trade repeatedly. In this infinite market game with exogenous matching probabilities and a common discount factor, we prove the existence of equilibria in stationary strategies. The equilibrium payoffs are given implicitly as a solution to a system of linear equations. Then, we endogenize the matching mechanism in a link formation stage that precedes the market game. When agents are sufficiently patient and link costs are low, we provide an algorithm to construct minimally connected networks that are pairwise stable with respect to the expected payoffs in the trading stage. The constructed networks are essentially efficient and consist of components with a constant buyer-seller ratio. The latter ratio increases (decreases) for a buyer (seller) that deletes one of her links in a pairwise stable component.
Original languageEnglish
Article number11
Pages (from-to)1-25
Number of pages25
JournalThe B.E. Journal of Theoretical Economics (Advances)
Volume10
Issue number1
DOIs
Publication statusPublished - 2010

ASJC Scopus subject areas

  • Economics, Econometrics and Finance(all)

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