Transition Dynamics in Equilibrium Search
Equilibrium search, transition paths, dynamic price formation, seller composition, motivated sellers, fire sales, liquidity, endogenous reversals
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).
BYU ScholarsArchive Citation
Atkin, S. Nuray and Platt, Brennan C., "Transition Dynamics in Equilibrium Search" (2021). Faculty Publications. 5779.
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