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Repeated Trade and the Velocity of Money

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Abstract

There are two sources of inefficiency of strategic equilibria (SE) in market mechanisms. The first is the oligopolistic effect, which occurs when an agent can single-handedly influence prices. With a continuum of agents we get "perfect competition" and this effect is, of course, wiped out. But the inefficiency of SE's may nevertheless persist because agents are not "perfectly liquid," i.e., the constraints of the mechanism are such that they cannot carry out arbitrary trades at the market prices. Our main result is that, if enough repeated rounds of trade are permitted within a single utility period, then the liquidity problem is overcome: SE outcomes turn out to be not only efficient but, in fact, Walrasian.

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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 895.

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Length: 16 pages
Date of creation: Jan 1989
Date of revision:
Publication status: Published in Journal of Mathematical Economics (1993), 22: 125-137
Handle: RePEc:cwl:cwldpp:895

Note: CFP 842.
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Keywords: Walrasian equilibrium; oligopoly; trading;

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References

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  1. Pradeep Dubey & Martin Shubik, 1979. "A Strategic Market Game with Price and Quantity Strategies," Cowles Foundation Discussion Papers 521, Cowles Foundation for Research in Economics, Yale University.
  2. 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.
  3. Amir, Rabah & Sahi, Siddharta & Shubik, Martin & Yao, Shuntian, 1990. "A strategic market game with complete markets," Journal of Economic Theory, Elsevier, vol. 51(1), pages 126-143, June.
  4. Shapley, Lloyd S & Shubik, Martin, 1977. "Trade Using One Commodity as a Means of Payment," Journal of Political Economy, University of Chicago Press, vol. 85(5), pages 937-68, October.
  5. Dubey, Pradeep, 1982. "Price-Quantity Strategic Market Games," Econometrica, Econometric Society, vol. 50(1), pages 111-26, January.
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Cited by:
  1. Jamsheed Shorish, 2010. "Functional rational expectations equilibria in market games," Economic Theory, Springer, vol. 43(3), pages 351-376, June.
  2. Gaël Giraud, 2007. "Walrasian Non-tâtonnement with Incomplete and Imperfectly Competitive Markets," Post-Print halshs-00155717, HAL.
  3. Massimo Morelli & Sayantan Ghosal, 2001. "Retrading in Market Games," Working Papers 01-09, Ohio State University, Department of Economics.
  4. Gaël Giraud, 2004. "The limit-price exchange process," Cahiers de la Maison des Sciences Economiques b04118, Université Panthéon-Sorbonne (Paris 1).
  5. Irasema Alonso, 1991. "Patterns of exchange, fiat money and the welfare costs of inflation," Economics Working Papers 63, Department of Economics and Business, Universitat Pompeu Fabra, revised Sep 1993.
  6. Giraud, Gael, 2003. "Strategic market games: an introduction," Journal of Mathematical Economics, Elsevier, vol. 39(5-6), pages 355-375, July.
  7. Martin Shubik & Shuntian Yao, 1992. "Transactions Loans, Intertemporal Loans, Variable Velocity, the Rates of Interest and Commodity Money: Part 1. Transactions Loans," Cowles Foundation Discussion Papers 1014, Cowles Foundation for Research in Economics, Yale University.
  8. Thomas Quint & Martin Shubik, 2004. "A Consumable Money. An Elementary Discussion of Commodity Money, Fiat Money and Credit: Part I," Cowles Foundation Discussion Papers 1455, Cowles Foundation for Research in Economics, Yale University.
  9. Gaël Giraud, 2007. "The Limit-Price Dynamics — Uniqueness, Computability and Comparative Dynamics in Competitiive Markets," Post-Print halshs-00155709, HAL.

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