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COMPETITIVE PRICING AND EFFICIENCY IN SEARCH EQUILIBRIUM*
Author(s) -
MORTENSEN DALE T.,
WRIGHT RANDALL
Publication year - 2002
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.t01-1-00001
Subject(s) - economics , matching (statistics) , competitive equilibrium , market clearing , set (abstract data type) , microeconomics , search cost , clearing , general equilibrium theory , mathematical economics , market efficiency , computer science , mathematics , financial economics , finance , statistics , programming language
We consolidate and generalize some results on price determination and efficiency in search equilibrium. Extending models by Rubinstein and Wolinsky and by Gale, heterogeneous buyers and sellers meet according to a general matching technology and prices are determined by a general bargaining condition. When the discount rate r and search costs converge to 0, we show that prices in all exchanges are the same and equal the competitive, market clearing, price. Given positive search costs, efficiency obtains iff bargaining satisfies Hosios' condition and r =0. When prices are set by third‐party market makers, however, we show that search equilibrium is necessarily efficient.