A Decentralized Market with Common Values Uncertainty: Non-Steady States¤

We analyze a market where (i) trade proceeds by random and anonymous pairwise meetings with bargaining; (ii) agents are asymmetrically informed about the value of the traded good; and (iii) no new entrants are allowed once the market is open. We show that information revelation and e±ciency never obtain in equilibrium, even as discounting is removed. This holds whether the asymmetry is two-sided or one-sided. In some cases there exist equilibria where a substantial amount goes untraded. This contrasts with the earlier literature, which was based on the steady-state equilibria of a model where agents enter the market every period. keywords: information revelation, interim incentive e±ciency, fear, noise, misrepresentation of information, one-time entry, decentralized markets. JEL classification numbers: C72, C78, D82, D83.