Matching and Bargaining in Dynamic Markets

ensures that exits from the market are matched precisely by new entries, thus maintaining the numbers of the two types at a steady level. With this and other "stationary" assumptions, they demonstrate the existence of a unique equilibrium. Binmore and Herrero (1984, 1987) show that equilibria in such markets are unique, without any stationary assumptions at all, provided that the agents are equipped with discount factors satisfying 0? 8< 1 (i = 1, 2). The current paper characterizes the unique equilibrium, for the case of continuous time and infinite numbers of agents of both types, in terms of the probabilities (iF(t) (i = 1, 2) that an agent of type i will not find a bargaining partner between time 0 and t. In principle, these probabilities, 'F1(t) and ?2(t), can be calculated from a knowledge of the search technology and the rates at which agents enter and leave the market. We carry through this enterprise for the simplest of search technologies in the case when agents of both types flow into the market at an equal exogenously determined rate.2 (The rate at which agents flow out of the market is determined by the equilibrium