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Turnover Externalities with Marketplace Trading
Author(s) -
Coles Melvyn G.
Publication year - 1999
Publication title -
international economic review
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 2.658
H-Index - 86
eISSN - 1468-2354
pISSN - 0020-6598
DOI - 10.1111/1468-2354.00044
Subject(s) - externality , microeconomics , pareto principle , stock (firearms) , matching (statistics) , economics , pareto optimal , set (abstract data type) , computer science , mechanical engineering , programming language , operations management , statistics , mathematics , engineering
This article considers equilibrium decentralized trade when there is a marketplace where buyers and sellers meet costlessly. Since buyers have idiosyncratic match payoffs for each seller's good, some buyers, rather than trade with the current stock of sellers, wait for new sellers to enter the marketplace to obtain a good they like. A turnover externality exists where all traders are better off with higher entry rates of new traders. Furthermore, this turnover externality supports multiple Pareto‐rankable equilibria. This provides new insights into similar results obtained in the random‐matching literature.