A Decentralized Market with Common Values Uncertainty: Non-Steady States

Max R. Blouin and Roberto Serrano

August 10, 1998

We analyze a market where (i) trade proceeds by random and anonymous pairwise meetings with bargaining; (ii) agents are asymmetrically informed about the value of the traded good; and (iii) no new entrants are allowed once the market is open. We depict this infinite-horizon market as a strategic-form game and, adapting existence theorems from the literature on anonymous games, we prove the existence of a Nash equilibrium for every value of the discount factor. The main questions are whether information revelation and efficiency obtain as the economy becomes approximately frictionless (i.e. as discounting is gradually removed). We show that this is not the case. This negative result holds whether the asymmetry is two-sided or restricted to one side of the market. This contrasts with the earlier literature, which was based on steady-state equilibria.

This page last updated on: August 15, 1998