Market allocation through search: Equilibrium adjustment and price dispersion

This essay discusses market allocation under uncertainty in a market for a homogeneous good. Market participants contact one another at random times to buy or sell single units of the good. Transactions are carried out at different prices simultaneously. Optimal search rules are employed to describe individuals behavior. Such models provide the framework of a market structure within which equilibrium adjustment processes are analyzed. These decentralized, nontâtonnement processes of price and quantity adjustment are utilized to examine equilibrium. Price dispersion, which characterizes equilibrium, is essentially due to finite lifetimes of market participants.