Equilibrium in matching models with directed search: Existence and characterization
Abstract
We study a decentralized trading model as in Peters (1984), where heterogeneous market participants face a trade-off between price and trade probability. In the first chapter, we present a novel proof of existence of a unique demand vector in Nash equilibrium. The proof is based on a recursive approach that exploits the monotonicity of matching functions. In the second chapter, we develop a tool based on directional derivatives that we use to characterize equilibrium and to resolve the long-standing problem of establishing uniqueness of symmetric equilibrium in this class of models. In the third chapter, we extend the analysis to a dynamic setting with homogeneous buyers and sellers. It is shown that there exists a continuum of Pareto-ranked equilibria characterized by prices that are generally above the static Nash equilibrium price, unless sellers can commit to maintain a trading relationship. In addition, price dispersion may endogenously arise as a temporary or permanent phenomenon.
Degree
Ph.D.
Advisors
Roberson, Purdue University.
Subject Area
Commerce-Business
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