Template-Type: ReDIF-Paper 1.0

Author-Name: Christian Korth
Author-X-Name-First: Christian 
Author-X-Name-Last: Korth

Author-Name: Stefan Napel
Author-X-Name-First: Stefan
Author-X-Name-Last: Napel

Title: Fairness, Price Stickiness, and History Dependence in Decentralized Trade
	
Abstract: The paper investigates price formation in a decentralized market with random matching.
Agents are assumed to have subdued social preferences: buyers, for example, prefer a
lower price to a higher one but experience reduced utility increases below a reference price
which serves as a common fairness benchmark. The strategic equilibrium reflects market
fundamentals, but it is markedly less sensitive to the buyer-seller ratio near the fair price
benchmark. Prices may be sticky around very dierent reference levels in markets with
otherwise identical fundamentals. The implied history dependence turns out to be mitigated
rather than exacerbated by friction.
Length:  24 pages
Creation-Date:  2008-07
File-URL: http://www.bgpe.de/texte/DP/064_korth.pdf
File-Format: Application/pdf
File-Function: First version, 2008
Number: 064
Classification-JEL: C78; D49; D63; C91
Keywords: random matching; price stickiness; social preferences; history dependence;
reference dependence
Handle: RePEc:bav:wpaper:064_korth