Abstract
I consider a simple bilateral trading game between a seller and a buyer who have private valuations for an indivisible good. The seller makes a price offer which the buyer can either accept or reject. If the seller can observe the valuation of the buyer (if information is symmetric), then bilateral trade is trivially efficient. If the seller cannot observe the valuation (if information is asymmetric), then bilateral trade is inefficient. This bilateral trading game between a single buyer and a single seller is embedded into a matching market with a continuum of traders. I consider steady-state equilibria in stationary strategies. I show that, on the overall market level, the relation between the informational regime and efficiency is inverted when frictions are small. In particular, if frictions are small and if information is asymmetric, the trading outcome in the market is close to being efficient. If information is symmetric, however, the trading outcome can be very inefficient -- even if frictions vanish.
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