When agents are not price takers, they typically cannot obtain an efficient reallocation of resources in one round of trade. This paper presents a noncooperative model of imperfect competition where agents can retrade allocations,consistent with the Edgeworth’s idea of recontracting. We show that there are allocations on the Pareto frontier that can be approximated arbitrarily closely when trade is myopic, i.e., when agents play a static Nash equilibrium at every round of retrading. We then show that the converging sequence of allocations generated by myopic retrading can also be supported along some retrade-proof Subgame Perfect Equilibrium path when traders anticipate future rounds of retrading.
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Paper provided by Institute for Advanced Study, School of Social Science in its series Economics Working Papers with number
0012.
Length: 26 pages Date of creation: Feb 2002 Date of revision: Publication status: Published in Journal of Economic Theory, 115, 151-81, 2004 Handle: RePEc:ads:wpaper:0012
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