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Perfect Competition in a Bilateral Monopoly

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  • 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://www.sunysb.edu/economics/research/papers/2005/Perfectcomp.pdf
    File Function: First version, 2005
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    Bibliographic Info

    Paper provided by Stony Brook University, Department of Economics in its series Department of Economics Working Papers with number 05-01.

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    Length: 24 pages.
    Date of creation: 21 Mar 2005
    Date of revision:
    Handle: RePEc:nys:sunysb:05-01

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    Postal: Stony Brook, NY 11794-4384
    Phone: (631)632-7540
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    Web page: http://www.stonybrook.edu/economics
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    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. MERTENS , Jean-François, 1996. "The limit-price mechanism," CORE Discussion Papers 1996050, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    2. Schmeidler, David, 1980. "Walrasian Analysis via Strategic Outcome Functions," Econometrica, Econometric Society, vol. 48(7), pages 1585-93, November.
    3. 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.
    4. Bulow, Jeremy I, 1982. "Durable-Goods Monopolists," Journal of Political Economy, University of Chicago Press, vol. 90(2), pages 314-32, April.
    5. Maskin, Eric, 1999. "Nash Equilibrium and Welfare Optimality," Review of Economic Studies, Wiley Blackwell, vol. 66(1), pages 23-38, January.
    6. 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.
    7. Coase, Ronald H, 1972. "Durability and Monopoly," Journal of Law and Economics, University of Chicago Press, vol. 15(1), pages 143-49, April.
    8. Dubey, Pradeep, 1982. "Price-Quantity Strategic Market Games," Econometrica, Econometric Society, vol. 50(1), pages 111-26, January.
    9. 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.
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