MATCHING AND BARGAINING MODELS OF MARKETS - APPROXIMATING SMALL MARKETS BY LARGE MARKETS

We show that the equilibrium of a matching and bargaining model of a m arket in which there is a finite number of agents at each date need no t be near the equilibrium of a market with a continuum of agents, alth ough matching probabilities are the same in both markets. Holding the matching process fixed, as the finite market becomes large its equilib rium approaches the equilibrium of its continuum limit.