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Perfect Competition in a Bilateral Monopoly (In honor of Martin Shubik)

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Author Info

  • Pradeep Dubey

    (Center for Game Theory, Dept. of Economics, SUNY at Stony Brook and Cowles Foundation, Yale University)

  • Dieter Sondermann

    (Department of Economics, University of Bonn, Bonn)

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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. In particular, Nash equilibria are Walrasian even in a bilateral monopoly.

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    File URL: http://cowles.econ.yale.edu/P/cd/d15a/d1534.pdf
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    Bibliographic Info

    Paper provided by Cowles Foundation for Research in Economics, Yale University in its series Cowles Foundation Discussion Papers with number 1534.

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    Length: 24 pages
    Date of creation: Sep 2005
    Date of revision:
    Publication status: Published in Games and Economic Behavior (Special Issue in Honor of Martin Shubik) (January 2009), 65(1), 124-141
    Handle: RePEc:cwl:cwldpp:1534

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    Postal: Yale University, Box 208281, New Haven, CT 06520-8281 USA
    Phone: (203) 432-3702
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    Web page: http://cowles.econ.yale.edu/
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    Postal: Cowles Foundation, Yale University, Box 208281, New Haven, CT 06520-8281 USA

    Related research

    Keywords: Limit orders; double auction; Nash equilibria; Walras equilibria; perfect competition; bilateral monopoly; mechanism design;

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    References

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    1. 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.
    2. 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.
    3. Bulow, Jeremy I, 1982. "Durable-Goods Monopolists," Journal of Political Economy, University of Chicago Press, vol. 90(2), pages 314-32, April.
    4. MERTENS , Jean-François, 1996. "The limit-price mechanism," CORE Discussion Papers 1996050, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    5. Coase, Ronald H, 1972. "Durability and Monopoly," Journal of Law and Economics, University of Chicago Press, vol. 15(1), pages 143-49, April.
    6. Dubey, Pradeep, 1982. "Price-Quantity Strategic Market Games," Econometrica, Econometric Society, vol. 50(1), pages 111-26, January.
    7. 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.
    8. Schmeidler, David, 1980. "Walrasian Analysis via Strategic Outcome Functions," Econometrica, Econometric Society, vol. 48(7), pages 1585-93, November.
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