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

Anbarci, N.; Gomis-Porqueras, P.; Pivato, M.

Abstract

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.

Citation

Anbarci, N., Gomis-Porqueras, P., & Pivato, M. (2017). Evolutionary stability of bargaining and price posting: implications for formal and informal activities. Journal of Evolutionary Economics, 28(2), 365-397. https://doi.org/10.1007/s00191-017-0544-2

• Journal Article Type: Article
• Online Publication Date: Nov 25, 2017
• Publication Date: Nov 25, 2017
• Deposit Date: Aug 16, 2018
• Publicly Available Date: Nov 25, 2019
• Journal: Journal of Evolutionary Economics
• Print ISSN: 0936-9937
• Electronic ISSN: 1432-1386
• Publisher: Springer
• Peer Reviewed: Peer Reviewed
• Volume: 28
• Issue: 2
• Pages: 365-397
• DOI: https://doi.org/10.1007/s00191-017-0544-2
• Public URL: https://durham-repository.worktribe.com/output/1322835