Bilateral matching and bargaining with private information

This paper studies a dynamic matching market with two-sided private information bilateral bargaining. The model is a private information replica of Mortensen and Wright (2002). There are two kinds of frictions: time discounting at the rate r and explicit search costs. A simple necessary and su cient condition on parameters for no market breakdown is obtained. This condition is the same regardless of whether the information is private. In addition, we show that a full-trade equilibrium, the one with the property that every meeting results in trade, exists if and only if r r , and is the unique equilibrium if r r. The thresholds r and r are explicitly derived. We also nd that for small r, private information deters entry. We derive conditions for this entry-deterrent e ect to be welfare-reducing or enhancing.