Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/73387
Authors: 
Korth, Christian
Napel, Stefan
Year of Publication: 
2008
Series/Report no.: 
BGPE Discussion Paper 64
Abstract: 
The paper investigates price formation in a decentralized market with random matching. Agents are assumed to have subdued social preferences: buyers, for example, prefer a lower price to a higher one but experience reduced utility increases below a reference price which serves as a common fairness benchmark. The strategic equilibrium reflects market fundamentals, but it is markedly less sensitive to the buyer-seller ratio near the fair price benchmark. Prices may be sticky around very different reference levels in markets with otherwise identical fundamentals. The implied history dependence turns out to be mitigated rather than exacerbated by friction.
Subjects: 
random matching
price stickiness
social preferences
history dependence
reference dependence
JEL: 
C78
D49
D63
C91
Document Type: 
Working Paper

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