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March 1985 - Volume 53 Issue 2 Page 409 - 432


p.409


The Distribution of Inventory Holdings in a Pure Exchange Barter Search Economy

Peter Diamond
Joel Yellin

Abstract

We model a search economy where individual inventories accumulate smoothly, but trades of discrete bundles occur at discrete times determined by a Poisson meeting process and the equilibrium probability that a randomly selected trading partner has sufficient inventory. We distinguish between buying for consumption and selling to increase inventory. Higher (uniform) trading prices imply greater inventory stocks. With optimal individual price setting, we elicit conditions for the existence of steady state equilibrium, show that equilibrium is unique when it exists, and that price is higher the greater the flow of endowment relative to the capacity to distribute goods to consumers.

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