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Walras Retrouve: Decentralized Trading Mechanisms and the Competitive Price

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Author Info
Gianni De Fraja
Jozsef Sakovics ()

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Abstract

In this paper we extend the standard matching analysis of decentralized markets allowing for the possibility that some traders are matched to more than one trader on the opposite side of the market. In contrast to the literature, we are able to reconcile the Walrasian equilibrium with the outcome of decentralized strategic trade: we show that there exist matching mechanisms which determine local market conditions such that the equilibrium price and quantities are the same as would result in the Walrasian global market.

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Publisher Info
Paper provided by Edinburgh School of Economics, University of Edinburgh in its series ESE Discussion Papers with number 36.

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Length: 20
Date of creation: Apr 2004
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Handle: RePEc:edn:esedps:36

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Keywords: Decentralised markets; Price formation; Walrasian equilibrium;

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This paper has been announced in the following NEP Reports: 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. Wolinsky, Asher, 1988. "Dynamic Markets with Competitive Bidding," Review of Economic Studies, Blackwell Publishing, vol. 55(1), pages 71-84, January. [Downloadable!] (restricted)
  2. McAfee, R. Preston & McMillan, John, 1987. "Auctions with a stochastic number of bidders," Journal of Economic Theory, Elsevier, vol. 43(1), pages 1-19, October. [Downloadable!] (restricted)
  3. Peter A. Diamond & Eric Maskin, 1979. "An Equilibrium Analysis of Search and Breach of Contract, I: Steady States," Bell Journal of Economics, The RAND Corporation, vol. 10(1), pages 282-316, Spring. [Downloadable!] (restricted)
  4. Gale, Douglas M, 1986. "Bargaining and Competition Part I: Characterization," Econometrica, Econometric Society, vol. 54(4), pages 785-806, July. [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. Mortensen, Dale T, 1982. "Property Rights and Efficiency in Mating, Racing, and Related Games," American Economic Review, American Economic Association, vol. 72(5), pages 968-79, December. [Downloadable!] (restricted)
  7. Coles, Melvyn G & Muthoo, Abhinay, 1998. "Strategic Bargaining and Competitive Bidding in a Dynamic Market Equilibrium," Review of Economic Studies, Blackwell Publishing, vol. 65(2), pages 235-60, April. [Downloadable!] (restricted)
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  8. Dale T. Mortensen, 1979. "The Matching Process as a Non-Cooperative/Bargaining Game," Discussion Papers 384, Northwestern University, Center for Mathematical Studies in Economics and Management Science. [Downloadable!]
  9. Gale, Douglas, 1988. "Price Setting and Competition in a Simple Duopoly Model," The Quarterly Journal of Economics, MIT Press, vol. 103(4), pages 729-39, November. [Downloadable!] (restricted)
  10. Taylor, Curtis R, 1995. "The Long Side of the Market and the Short End of the Stick: Bargaining Power and Price Formation in Buyers', Sellers', and Balanced Markets," The Quarterly Journal of Economics, MIT Press, vol. 110(3), pages 837-55, August. [Downloadable!] (restricted)
  11. Gale, Douglas, 1987. "Limit theorems for markets with sequential bargaining," Journal of Economic Theory, Elsevier, vol. 43(1), pages 20-54, October. [Downloadable!] (restricted)
  12. Harstad, Ronald M. & Kagel, John H. & Levin, Dan, 1990. "Equilibrium bid functions for auctions with an uncertain number of bidders," Economics Letters, Elsevier, vol. 33(1), pages 35-40, May. [Downloadable!] (restricted)
  13. Martin J. Osborne & Ariel Rubinstein, 2005. "Bargaining and Markets," Levine's Bibliography 666156000000000515, UCLA Department of Economics. [Downloadable!]
  14. 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)
  15. P. Diamond, 1980. "Mobility Costs, Frictional Unemployment and Efficiency," Working papers 257, Massachusetts Institute of Technology (MIT), Department of Economics.
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  16. Bester, Helmut, 1988. "Bargaining, Search Costs and Equilibrium Price Distributions," Review of Economic Studies, Blackwell Publishing, vol. 55(2), pages 201-14, April. [Downloadable!] (restricted)
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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. Alp E. Atakan, 2006. "Competitive Equilibria in Decentralized Matching with Incomplete Information," Discussion Papers 1437, Northwestern University, Center for Mathematical Studies in Economics and Management Science. [Downloadable!]
  2. Selvaggi, Marianao & Vasconcelos, Luis, 2006. "Star Wars: Exclusive Superstars and Collusive Outcomes," FEUNL Working Paper Series wp496, Universidade Nova de Lisboa, Faculdade de Economia. [Downloadable!]
  3. Schmitz, Patrick W., 2003. "On Second Price Auctions and Imperfect Competition," CEPR Discussion Papers 3774, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
    Other versions:
  4. Stephan Lauermann, 2008. "Price Setting in a Decentralized Market and the Competitive Outcome," Working Paper Series of the Max Planck Institute for Research on Collective Goods 2008_06, Max Planck Institute for Research on Collective Goods. [Downloadable!]
  5. Artyom Shneyerov & Adam Chi Leung Won, 2008. "The Rate of Convergence to Perfect Competition of Matching and Bargaining Mechanisms," Discussion Papers 1467, Northwestern University, Center for Mathematical Studies in Economics and Management Science. [Downloadable!]
  6. Satterthwaite, Mark & Shneyerov, Art, 2004. "Dynamic Matching,Two-sided Incomplete Information, and Participation Costs: Existence and Convergence to Perfect Competition," Micro Theory Working Papers shneyerov-04-12-17-02-54-, Microeconomics.ca Website, revised 17 Dec 2004. [Downloadable!]
    Other versions:
  7. Shneyerov, Art & Wong, Adam Chi Leung, 2007. "Bilateral Matching and Bargaining with Private Information," Micro Theory Working Papers shneyerov-07-05-01-03-38-, Microeconomics.ca Website, revised 01 May 2007. [Downloadable!]
  8. Satterthwaite, Mark & Shneyerov, Artyom, 2003. "Convergence of a Dynamic Matching and Bargaining Market with Two-sided Incomplete Information to Perfect Competition," Micro Theory Working Papers shneyerov-03-12-17-09-36-, Microeconomics.ca Website, revised 17 Dec 2003. [Downloadable!]
    Other versions:
  9. Ahmed Anwar & József Sákovics, 2007. "A Decentralized Market for a Perishable Good," Contributions to Theoretical Economics, Berkeley Electronic Press, vol. 7(1), pages 1312-1312. [Downloadable!] (restricted)
  10. Chrysovalantou Milliou, 2004. "Exclusive Dealing And Compatibility Of Investments," Economics Working Papers we044919, Universidad Carlos III, Departamento de Economía. [Downloadable!]
  11. Matti Liski & Juha Virrankoski, 2004. "Frictions in Project-Based Supply of Permits," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 28(3), pages 347-365, July. [Downloadable!] (restricted)
  12. Shneyerov, Art & Wong, Adam Chi Leung, 2007. "The Rate of Convergence to Perfect Competition of a Simple Matching and Bargaining Mechanism," Micro Theory Working Papers shneyerov-07-05-01-03-43-, Microeconomics.ca Website, revised 01 May 2007. [Downloadable!]
  13. Art Shneyerov, 2006. "Dynamic Matching with Two-sided Incomplete Information and Participation Costs," Theory workshop papers 815595000000000009, UCLA Department of Economics. [Downloadable!]
  14. Makoto Watanabe, 2006. "Middlemen: The Visible Market Makers," Economics Working Papers we061002, Universidad Carlos III, Departamento de Economía. [Downloadable!]
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