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Trading Uncertainty and Market Form

Yannis M. Ioannides
International Economic Review
Vol. 31, No. 3 (Aug., 1990), pp. 619-638
DOI: 10.2307/2527165
Stable URL: http://www.jstor.org/stable/2527165
Page Count: 20
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Trading Uncertainty and Market Form
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Abstract

This paper examines purely random multilateral matching among a large number of informationally isolated individuals who desire to trade. The structure of links among traders is characterized by means of random graphs, defined by a parameter that is chosen by prospective traders. Trading groups of all sizes (including pairs, as a special case) result, but the size distribution may contain a mass point at infinity. That is, within a certain subset of the entire economy trading uncertainty is entirely eliminated. The equilibrium price distribution consists of a mass point and of a mixture of densities. It is shown that with repeated matching small trading groups disappear at a steady-state equilibrium.

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