Equilibrium Mechanisms in a Decentralized Market

Abstract A large decentralized market where buyers have private information about the idiosyncratic value of an exchange opportunity with a seller is studied. The seller offers the buyer a contract or mechanism as soon as he is matched. It is shown that if the discount factor is high enough, there will be a symmetric market equilibrium in which all sellers offer simple fixed price mechanisms. Along the equilibrium path these mechanisms will be ex ante inefficient. Prices will be too high and the extent of search by buyers too low. Journal of Economic Literature Classification Numbers: D82, D83, D44.