Markov Equilibria in Dynamic Matching and Bargaining Games

Working Paper
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Gale, Douglas 
Sabourian, Hamid 

Rubinstein and Wolinsky (1990) show that a simple homogeneous market with exogenous matching has continuum of (non-competitive) perfect equilibria, but the unique Markov perfect equilibrium is competitive. By contrast, in the more general case of heterogeneous markets, we show there exists a continuum of (non-competitive) Markov perfect equilibria. However, a refinement of the Markov property, which we call monotonicity, does suffice to guarantee perfectly competitive equilibria, if, and only if, it is monotonic. The monotonicity property is closely related to the concept of Nash equilibrium with complexity costs.

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