Prices, delay, and the dynamics of trade (Q697957)

Starting from a simple model for nonstationary dynamic markets with heterogeneous traders and in which trading patterns, market compositions and the transactions prices are determined endogenously, the authors characterize the dynamics of trading patterns and market composition whenever the trade is bilateral, finding a trading partner in costly, the prices are induced by bargaining and the preferences are private information. Under these conditions, the equilibrium in inefficient and exhibits delay as sellers price discriminate between buyers with different values. It friction vanishes, the transaction prices are asymptotically competitive and the welfare loss of inefficient trading approaches to zero, even though the trading patterns continue to be inefficient and the delay persists.