The rate of convergence to perfect competition of matching and bargaining mechanisms

We study the steady state of a market with incoming cohorts of buyers and sellers who are matched pairwise and bargain under private information. A friction parameter is τ , the length of the time period until the next meeting. We provide a necessary and sufficient condition for the convergence of mechanism outcomes to perfect competition at the linear rate in τ , which is shown to be the fastest possible among all bargaining mechanisms. The condition requires that buyers and sellers always retain some bargaining power. The bargaining mechanisms that satisfy this condition are called nonvanishing bargaining power (NBP) mechanisms. Simple random proposer take-itor-leave-it protocols are NBP, while k-double auctions (k-DA) are not. We find that k-DAs have equilibria that converge to perfect competition at a linear rate, converge at a slower rate or even do not converge at all.