Complexity and Competition, Part I: Sequential Matching
AbstractThis 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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Bibliographic InfoPaper provided by Faculty of Economics, University of Cambridge in its series Cambridge Working Papers in Economics with number 0345.
Date of creation: Oct 2003
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Web page: http://www.econ.cam.ac.uk/index.htm
bargaining; matching; complexity; automaton; bounded rationality; Markov equilibrium; competitive equilibrium;
Other versions of this item:
- Douglas Gale & Hamid Sabourian, 2003. "Complexity and Competition, Part I: Sequential Matching," Levine's Bibliography 666156000000000199, UCLA Department of Economics.
- C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
- D78 - Microeconomics - - Analysis of Collective Decision-Making - - - Positive Analysis of Policy Formulation and Implementation
- D5 - Microeconomics - - General Equilibrium and Disequilibrium
This paper has been announced in the following NEP Reports:
- NEP-ALL-2003-10-20 (All new papers)
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