The Long Side of the Market and the Short End of the Stick: Bargaining Power and Price Formation in Buyers', Sellers', and Balanced Markets
Abstract
The determinants of bargaining power and price formation in a dynamic exchange market
where new traders enter randomly over time are studied. When agents on the long side
of the market possess the option to wait for the arrival of future partners, the terms
of trade in the spot market must honor the value of this option. The equilibrium terms
of trade are expressed in intuitive closed-form equations that highlight the distinct
influences of short-run spot-market conditions and long-run market demographics. Copyright
1995, the President and Fellows of Harvard College and the Massachusetts Institute
of Technology.
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Curtis R. Taylor
Professor of Economics
Taylor's primary research interest is microeconomic theory with emphasis on the areas
of Industrial Organization, Political Economy, and the Theory of Contracts. He has
worked on a variety of topics such as: the optimal design of research contests, the
causes and timing of market crashes, and consumer privacy. Professor Taylor's research
has been supported by grants from the National
Science Foundation, the U.S. Department of Agriculture, and the Texas Higher Education
Coordinating Board, am

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