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Complexity and Competition, Part I: Sequential Matching

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Author Info
Gale, D.
Sabourian, H.

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Abstract

This paper uses the complexity of non-competitive behaviour to provide a new justification for competitive equilibrium in the context of extensive-form market games with a finite number of agents. This paper demonstrates that if rational agents have (at least at the margin) an aversion for complex behaviours then their maximizing behaviour will result in simple behavioural rules and thereby in a perfectly competitive outcome. In particular, we consider sequential market games with heterogeneous sets of buyers and sellers and show that if the complexity costs of implementing strategies enter players’ preferences, together with the standard payoff in the game, then every equilibrium strategy profile induces a competitive outcome. This is done for sequential deterministic matching/bargaining models in which at any date either the identities of the matched players are determined exogenously or one player is exogenously selected to choose his partner and make a price proposal.

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File URL: http://www.econ.cam.ac.uk/dae/repec/cam/pdf/cwpe0345.pdf
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Publisher Info
Paper provided by Faculty of Economics, University of Cambridge in its series Cambridge Working Papers in Economics with number 0345.

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Length: 57
Date of creation: Oct 2003
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Handle: RePEc:cam:camdae:0345

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Related research
Keywords: bargaining; matching; complexity; automaton; bounded rationality; Markov equilibrium; competitive equilibrium;

Other versions of this item:

Find related papers by JEL classification:
C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
D78 - Microeconomics - - Analysis of Collective Decision-Making - - - Positive Analysis of Policy-Making and Implementation
D5 - Microeconomics - - General Equilibrium and Disequilibrium

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Gale, Douglas M, 1986. "Bargaining and Competition Part I: Characterization," Econometrica, Econometric Society, vol. 54(4), pages 785-806, July. [Downloadable!] (restricted)
  2. Abreu, Dilip & Rubinstein, Ariel, 1988. "The Structure of Nash Equilibrium in Repeated Games with Finite Automata," Econometrica, Econometric Society, vol. 56(6), pages 1259-81, November. [Downloadable!] (restricted)
  3. Hamid Sabourian, 2000. "Bargaining and Markets: Complexity and the Walrasian Outcome," Cowles Foundation Discussion Papers 1249, Cowles Foundation, Yale University. [Downloadable!]
  4. Rubinstein, Ariel & Wolinsky, Asher, 1990. "Decentralized Trading, Strategic Behaviour and the Walrasian Outcome," Review of Economic Studies, Blackwell Publishing, vol. 57(1), pages 63-78, January. [Downloadable!] (restricted)
  5. Rubinstein, Ariel & Wolinsky, Asher, 1985. "Equilibrium in a Market with Sequential Bargaining," Econometrica, Econometric Society, vol. 53(5), pages 1133-50, September. [Downloadable!] (restricted)
  6. Kalyan Chatterjee & Hamid Sabourian, 2000. "Multiperson Bargaining and Strategic Complexity," Econometrica, Econometric Society, vol. 68(6), pages 1491-1510, November.
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  7. McLennan, Andrew & Sonnenschein, Hugo, 1991. "Sequential Bargaining as a Noncooperative Foundation for Walrasian Equilibrium," Econometrica, Econometric Society, vol. 59(5), pages 1395-1424, September. [Downloadable!] (restricted)
  8. Martin J. Osborne & Ariel Rubinstein, 2005. "Bargaining and Markets," Levine's Bibliography 666156000000000515, UCLA Department of Economics. [Downloadable!]
  9. Binmore, Ken G & Herrero, M J, 1988. "Matching and Bargaining in Dynamic Markets," Review of Economic Studies, Blackwell Publishing, vol. 55(1), pages 17-31, January. [Downloadable!] (restricted)
  10. Gale, D. & Sabourian, H., 2003. "Markov Equilibria in Dynamic Matching and Bargaining Games," Cambridge Working Papers in Economics 0322, Faculty of Economics, University of Cambridge. [Downloadable!]
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  11. Rubinstein, Ariel, 1986. "Finite automata play the repeated prisoner's dilemma," Journal of Economic Theory, Elsevier, vol. 39(1), pages 83-96, June. [Downloadable!] (restricted)
  12. Kalai, E & Neme, A, 1992. "The Strength of a Little Perfection," International Journal of Game Theory, Springer, vol. 20(4), pages 335-55.
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Hamid Sabourian & Jihong Lee, 2004. "Complexity and Efficiency in the Negotiation Game," Econometric Society 2004 North American Winter Meetings 82, Econometric Society. [Downloadable!]
  2. Hamid Sabourian & Jihong Lee, 2004. "Complexity and Efficiency in Repeated Games with Negotiation," Econometric Society 2004 North American Summer Meetings 58, Econometric Society. [Downloadable!]
    Other versions:
  3. Lee, J. & Sabourian, H., 2004. "Complexity and Efficiency in Repeated Games and Negotiation," Cambridge Working Papers in Economics 0419, Faculty of Economics, University of Cambridge. [Downloadable!]
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