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and vs, are independent and uniformly distributed on [0,1]. Each knows her own valuation but not the valuation of the other. Trade proceeds as follows.
and vs, are independent and uniformly distributed on [0,1]. Each knows her own valuation but not the valuation of the other. Trade proceeds as follows. The buyer and seller simultaneously choose prices pb and ps, respectively. You may think of pb as the amount the buyer is offering to pay for the object, and ps as the minimum amount the seller will accept. If pbps, then trade occurs at price pb. If pbvs. In the equilibrium, trade only occurs if vb2vs. Therefore, the equilibrium involves less trade than would be efficient. (c) Find a Nash equilibrium in which each player always chooses one of two prices (note that the two prices may be different for the two players). Solution: One such equilibrium is for the seller to choose ps=1 if vs>1/2 and ps=1/2 if vs1/2, and the buyer to choose pb=0 if vb
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