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Evolutionary stability of bargaining and price posting: implications for formal and informal activities

journal contribution
posted on 2018-04-01, 00:00 authored by Nejat AnbarciNejat Anbarci, P Gomis-Porqueras, M Pivato
In this paper we study the co-existence of two well known trading protocols, bargaining and price-posting. To do so we consider a frictional environment where buyers and sellers play price-posting and bargaining games infinitely many times. Sellers switch from one market to the other at a rate that is proportional to their payoff differentials. Given the different informational requirements associated with these two trading mechanisms, we examine their possible co-existence in the context of informal and formal markets. Other than having different trading protocols, we also consider other distinguishing features. We find a unique stable equilibrium where price-posting (formal markets) and bargaining (informal markets) co-exist. In a richer environment where both sellers and buyers can move across markets, we show that there exists a unique stable dynamic equilibrium where formal and informal activities also co-exist whenever sellers’ and buyers’ net costs of trading in the formal market have opposite signs.

History

Journal

Journal of evolutionary economics

Volume

28

Issue

2

Pagination

365 - 397

Publisher

Springer Verlag

Location

Berlin, Germany

ISSN

0936-9937

eISSN

1432-1386

Language

eng

Publication classification

C Journal article; C1 Refereed article in a scholarly journal

Copyright notice

2017, Springer-Verlag GmbH Germany, part of Springer Nature

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