Title

Transition Dynamics in Equilibrium Search

Keywords

Equilibrium search, transition paths, dynamic price formation, seller composition, motivated sellers, fire sales, liquidity, endogenous reversals

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.

Original Publication Citation

“Transition Dynamics in Equilibrium Search,” by Nuray Akin and Brennan Platt. Forthcoming at AEJ: Micro (accepted January 2021).

Document Type

Peer-Reviewed Article

Publication Date

2021-1

Publisher

AEJ: Micro

Language

English

College

Family, Home, and Social Sciences

Department

Economics

University Standing at Time of Publication

Full Professor

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