TY  - JOUR
AU  - Bulow,Jeremy
AU  - Klemperer,Paul
TI  - Rational Frenzies and Crashes
JF  - National Bureau of Economic Research Technical Working Paper Series
VL  - No. 112
PY  - 1991
Y2  - September 1991
UR  - http://www.nber.org/papers/t0112
L1  - http://www.nber.org/papers/t0112.pdf
N1  - Author contact info:
Jeremy I. Bulow
Stanford University
Graduate School of Business
Stanford, CA  94305-7298
Tel: 650/723-2160
Fax: 650/725-8916
E-Mail: jbulow@stanford.edu
AB  - Most markets clear through a sequence of sales rather than through a Walrasian auctioneer. Because buyers can decide between buying now or later, rather than only now or never, buyers' current 'willingness to pay' is much more sensitive to price than is the demand curve. A consequence is that markets will be extremely sensitive to new information, leading to both 'frenzies, " where demand feeds upon itself, and "crashes," where price drops discontinuously. Although no buyer's independent reservation value reveals much about overall demand, a small increase in one such value can cause a large increase or decrease in average price.
ER  -