Bilateral Matching and Bargaining with Private Information

We explore the role of private information in bilateral matching and bargaining. Our model is a replica of Mortensen and Wright (2002), but with private information. A simple necessary and sufficient condition on the parameters of the model for existence of equilibrium with entry is obtained. As in Mortensen and Wright (2002), we find that equilibrium is unique and has the property that every meeting results in trade when the discount rate is sufficiently small. There are also equilibria in which not every meeting results in trade. All equilibria converge to perfect competition as the frictions of search costs and discounting are removed. We find that private information may deter entry. Because of matching externalities, this entry-deterring effect of private information may be welfare-enhancing.Matching and Bargaining, Search, Foundations for Perfect Competi- tion, Two-sided Incomplete Information