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Robustness of equilibrium price dispersion in finite market games

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  • Régis Breton
  • Bertrand Gobillard

Abstract

We propose an approach to restricting the set of equilibria in a strategic market game and use it to assess the robustness of the price dispersion results obtained by Koutsougeras [2003, J. Econ. Theory 108, 169-175] in the multiple trading posts setup. More precisely, we perturb the initial game by the introduction of transaction costs and our main results are the following. (i) No equilibrium with price dispersion of the game with costless transactions can be approached by equilibria with positive transaction costs as costs get arbitrarily small. (ii) When this type of perturbation is considered the set of equilibrium outcomes is not a®ected by the number of trading posts.

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Bibliographic Info

Paper provided by University of Paris West - Nanterre la Défense, EconomiX in its series EconomiX Working Papers with number 2006-10.

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Length: 15 pages
Date of creation: 2006
Date of revision:
Handle: RePEc:drm:wpaper:2006-10

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Keywords: Strategic market games; law of one price; equilibrium selection.;

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