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Bilateral trading and incomplete information: Price convergence in a small market

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  • Chatterjee, Kalyan
  • Das, Kaustav

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 seller with private information, there are two identical buyers and another seller, whose valuation is commonly known to be in between the two possible valuations of the seller with private information. We consider an infinite horizon game with simultaneous one-sided offers and simultaneous responses. We construct one particular 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.

Suggested Citation

  • Chatterjee, Kalyan & Das, Kaustav, 2017. "Bilateral trading and incomplete information: Price convergence in a small market," Games and Economic Behavior, Elsevier, vol. 106(C), pages 89-113.
    • Handle: RePEc:eee:gamebe:v:106:y:2017:i:c:p:89-113
    DOI: 10.1016/j.geb.2017.09.006
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    Cited by:

    1. Chatterjee, Kalyan & Das, Kaustav, 2018. "Bilateral trading with incomplete information and price convergence in a small market: The continuous support case," Economics Letters, Elsevier, vol. 163(C), pages 118-120.

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    More about this item

    Keywords

    Bilateral bargaining; Incomplete information; Outside options; Coase conjecture;
    All these keywords.

    JEL classification:

    • C78 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Bargaining Theory; Matching Theory
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design

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