Polanski, A. and Winter, E. (2010) Endogenous two-sided markets with repeated transactions. B.E. Journal of Theoretical Economics, 10 (1). ISSN 1935-1704
Full text not available from this repository.Abstract
We consider homogeneous two-sided markets, in which connected buyer-seller pairs bargain and trade repeatedly. In this infinite market game with exogenous matching probabilities and a common discount factor, we prove the existence of equilibria in stationary strategies. The equilibrium payoffs are given implicitly as a solution to a system of linear equations. Then, we endogenize the matching mechanism in a link formation stage that precedes the market game. When agents are sufficiently patient and link costs are low, we provide an algorithm to construct minimally connected networks that are pairwise stable with respect to the expected payoffs in the trading stage. The constructed networks are essentially efficient and consist of components with a constant buyer-seller ratio. The latter ratio increases (decreases) for a buyer (seller) that deletes one of her links in a pairwise stable component. Copyright © 2010 The Berkeley Electronic Press. All rights reserved.