Matching and Bargaining: The Role of Deadlines.
We consider a dynamic model where traders in
each period are matched randomly into pairs who then bargain about the
division of a fixed surplus. When agreement is reached the traders leave the
market. Traders who do not come to an agreement return next period in which
they will be matched again, as long as their deadline has not expired yet.
New traders enter exogenously in each period. We assume that traders within
a pair know each other's deadline. We define and characterize the stationary
equilibrium configurations. Traders with longer deadlines fare better than
traders with short deadlines. It is shown that the heterogeneity of
deadlines may cause delay. It is then shown that a centralized mechanism
that controls the matching protocol, but does not interfere with the
bargaining, eliminates all delay. Even though this efficient centralized
mechanism is not as good for traders with long deadlines, it is shown that
in a model where all traders can choose which mechanism to use, no delay
will be observed.
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