The Rate of Convergence to Perfect Competition of Matching and Bargaining Mechanisms

We study the steady state of a market with incoming cohorts of buyers and sellers who are matched pairwise and bargain under private information. We first consider generalized random-proposer take-it-or-leave-it offer games (GRP TIOLI games). This class of games includes a simple random-proposer TIOLI game, but also many other interesting bargaining games. A friction parameter is tau, the length of the time period until the next meeting. We find that as tau (right arrow) 0, all market equilibria converge to the Walrasian limit, at the fastest possible rate Omicron (tau) among all bargaining mechanisms. Some important bargaining games not in this class may have non-convergent market equilibria. This is the case for the k-double auction: we find that there are equilibria that converge at a linear rate, those that converge at a slower rate or even not converge at all.