This paper presents a model of co-ordination failures based on market power and local oligopoly. The economy exhibits a multiplicity of Pareto-ranked equilibria. The introduction of uncertainty generates an endogenous equilibrium selection process, due to a strategic use of information by firms....

Before firms decide whether to enter a new market or not, they have the opportunity to buy information about several variables that might affect the profitability of this market. Our model differs from the existing literature on endogenous information acquisition in two respects: (1) there is...

We analyse credit market equilibrium when banks screen loan applicants. When banks have a convex cost function of screening, a pure strategy equilibrium exists where banks optimally set interest rates at the same level as their competitors. This result complements Broecker’s (1990) analysis,...

The economic boom of the USA in the 1990s was remarkable in its duration, the sustained rise in equipment investment, the reduced volatility of productivity growth, and continued uncertainty about the trend growth rate. In this paper we link these phenomena using an extension of the classic...

We consider the consequences of competition between two types of experimental exchange mechanisms, a “decentralized bargaining” market, and a “centralized” market. The experiment demonstrates that decentralized bargaining is subject to a process of unraveling in which relatively weak...

We consider a dynamic model where traders in each period are matched randomly into pairs who then bargain about the division of a fixed surplus. When agreement is reached the traders leave the market. Traders who do not come to an agreement return next period in which they will be matched again,...

Many models in the economics literature deal with strategic situations with privately informed agents. In those models the information structure is assumed to be exogenous and common knowledge. We consider whether such models, and the results they produce, are robust with respect the...

Many models in the economics literature deal with strategic situations with privately informed agents. In those models the information structure is assumed to be exogenous and common knowledge. In many applications information gathering is one of the strategic options available to agents. We...

Despite the recent misfortunes of many dotcoms, e-commerce will have major and lasting effects on economic activity. But the rise and fall in the valuations of the first wave of e-commerce companies show that vague promises of distant profits are insufficient. Only business models based on sound...

Traditional economic wisdom says that free entry in a market will drive profits down to zero. This conclusion is usually drawn under the assumption of perfect information. We assume that a priori there exists imperfect information about the profitability of the market, but that potential...