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

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

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Authors

P. Gomis-Porqueras

M. Pivato



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.

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

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