Optimal market thickness

Traders that arrive over time give rise to a dynamic tradeoff between the benefits of increasing gains from trade by accumulating traders and the associated cost of delay due to discounting. We analyze this tradeoff in a dynamic bilateral trade model in which a buyer and seller arrive in each period and draw their types independently from commonly known distributions. With symmetric binary types, the optimal market clearing policy can be implemented with posted prices and ex post budget balance, provided that it is optimal to store at least one trader. While optimally thick markets involve storing a small number of traders, their performance is nevertheless close to that of a large market. In particular, irrespective of the type distributions, two-thirds of the gains from increased market thickness can be achieved by storing just one trader.