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Perfect Competition in a Bilateral Monopoly

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  • Pradeep Dubey
  • Dieter Sondermann
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    Abstract

    We show that if limit orders are required to vary smoothly, then strategic (Nash) equilibria of the double auction mechanism yield competitive (Walras) allocations. It is not necessary to have competitors on any side of any market: smooth trading is a substitute for price wars. Inparticular, Nash equilibria are Walrasian even in a bilateral monopoly.

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    File URL: http://www.wiwi.uni-bonn.de/bgsepapers/bonedp/bgse26_2003.pdf
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    Bibliographic Info

    Paper provided by University of Bonn, Germany in its series Bonn Econ Discussion Papers with number bgse26_2003.

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    Length: 24
    Date of creation: Nov 2003
    Date of revision:
    Handle: RePEc:bon:bonedp:bgse26_2003

    Contact details of provider:
    Postal: Bonn Graduate School of Economics, University of Bonn, Adenauerallee 24 - 26, 53113 Bonn, Germany
    Fax: +49 228 73 6884
    Web page: http://www.bgse.uni-bonn.de/index.php?id=494

    Related research

    Keywords: Limitorders; doubleauction; Nashequilibria; Walras equilibria; perfectcompetition; bilateralmonopoly; mechanism design;

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    References

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    1. Dubey, Pradeep & Mas-Colell, Andreau & Shubik, Martin, 1980. "Efficiency properties of strategies market games: An axiomatic approach," Journal of Economic Theory, Elsevier, vol. 22(2), pages 339-362, April.
    2. MERTENS , Jean-François, 1996. "The limit-price mechanism," CORE Discussion Papers 1996050, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    3. Schmeidler, David, 1980. "Walrasian Analysis via Strategic Outcome Functions," Econometrica, Econometric Society, vol. 48(7), pages 1585-93, November.
    4. Sahi, Siddhartha & Yao, Shuntian, 1989. "The non-cooperative equilibria of a trading economy with complete markets and consistent prices," Journal of Mathematical Economics, Elsevier, vol. 18(4), pages 325-346, September.
    5. Dubey, Pradeep, 1982. "Price-Quantity Strategic Market Games," Econometrica, Econometric Society, vol. 50(1), pages 111-26, January.
    6. Mas-Colell, Andreu, 1980. "Noncooperative approaches to the theory of perfect competition: Presentation," Journal of Economic Theory, Elsevier, vol. 22(2), pages 121-135, April.
    7. Bulow, Jeremy I, 1982. "Durable-Goods Monopolists," Journal of Political Economy, University of Chicago Press, vol. 90(2), pages 314-32, April.
    8. Coase, Ronald H, 1972. "Durability and Monopoly," Journal of Law and Economics, University of Chicago Press, vol. 15(1), pages 143-49, April.
    9. Hurwicz, L, 1979. "Outcome Functions Yielding Walrasian and Lindahl Allocations at Nash Equilibrium Points," Review of Economic Studies, Wiley Blackwell, vol. 46(2), pages 217-25, April.
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