American Economic Journal:
Microeconomics
ISSN 1945-7669 (Print) | ISSN 1945-7685 (Online)
Transition Dynamics in Equilibrium Search
American Economic Journal: Microeconomics
(pp. 158–99)
Abstract
We study a dynamic equilibrium search model where sellers differ in their urgency to liquidate an asset. Buyers strategically make price offers without knowing a given seller's urgency. We study liquidity and price dynamics on the transition path after an unexpected shock. Generically, the transition includes a phase where all buyers offer the same price, causing a market collapse; however, price dispersion resumes in finite time, leading to a recovery where both types make sales. We show that prices and liquidity can overshoot before converging to the steady state. When relaxed sellers randomly become desperate, dampening oscillations can occur.Citation
Akın, Ş. Nuray, and Brennan C. Platt. 2022. "Transition Dynamics in Equilibrium Search." American Economic Journal: Microeconomics 14 (4): 158–99. DOI: 10.1257/mic.20200227Additional Materials
JEL Classification
- C73 Stochastic and Dynamic Games; Evolutionary Games; Repeated Games
- D11 Consumer Economics: Theory
- D83 Search; Learning; Information and Knowledge; Communication; Belief; Unawareness