Concepts and Properties of Substitute Goods
AbstractWe distinguish two notions of substitutes for discrete inputs of a firm. Class substitutes are defined assuming that units of a given input have the same price while unitary substitutes treat each unit as a distinct input with its own price. Unitary substitutes is necessary and sufficient for such results as the robust existence of equilibrium, the robust inclusion of the Vickrey outcome in the core, and the law of aggregate demand, while the class substitutes condition is necessary and sufficient for robust monotonicity of certain auction/tatonnement processes. We analyze the concept of pseudo-equilibrium which extends, and in some sense approximates, the concept of equilibrium when no equilibrium exists. We characterize unitary substitutes as class substitutes plus two other properties. We extend the analysis to divisible inputs, with a particular focus on robustness of the concepts and their relation to the generalized law of aggregate demand.
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Bibliographic InfoPaper provided by Economics Group, Nuffield College, University of Oxford in its series Economics Papers with number 2006-W02.
Length: 54 pages
Date of creation: 08 May 2006
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Web page: http://www.nuff.ox.ac.uk/economics/
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- NEP-ALL-2006-05-20 (All new papers)
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- Paul Milgrom, .
"Putting Auction Theory to Work: The Simultaneous Ascending Auction,"
98002, Stanford University, Department of Economics.
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- Paul R. Milgrom, 1985. "Auction Theory," Cowles Foundation Discussion Papers 779, Cowles Foundation for Research in Economics, Yale University.
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- John William Hatfield & Paul R. Milgrom, 2005.
"Matching with Contracts,"
American Economic Review,
American Economic Association, vol. 95(4), pages 913-935, September.
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