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Perfect Competition in a Bilateral Monopoly

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Author Info
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.)
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 Format: application/pdf
File Function: First version, 2005
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Publisher Info
Paper provided by Stony Brook University, Department of Economics in its series Department of Economics Working Papers with number 05-01.

Download reference. The following formats are available: HTML (with abstract), plain text (with abstract), BibTeX, RIS (EndNote, RefMan, ProCite), ReDIF
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
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Related research
Keywords: Limit orders; double auction; Nash equilibria; Walras equilibria; perfect competition; bilateral monopoly; mechanism design;

Find related papers by JEL classification:
C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
D41 - Microeconomics - - Market Structure and Pricing - - - Perfect Competition
D42 - Microeconomics - - Market Structure and Pricing - - - Monopoly
D44 - Microeconomics - - Market Structure and Pricing - - - Auctions
D61 - Microeconomics - - Welfare Economics - - - Allocative Efficiency; Cost-Benefit Analysis

References listed on IDEAS
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  1. Schmeidler, David, 1980. "Walrasian Analysis via Strategic Outcome Functions," Econometrica, Econometric Society, vol. 48(7), pages 1585-93, November. [Downloadable!] (restricted)
  2. 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. [Downloadable!] (restricted)
  3. Dubey, Pradeep, 1982. "Price-Quantity Strategic Market Games," Econometrica, Econometric Society, vol. 50(1), pages 111-26, January. [Downloadable!] (restricted)
  4. 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. [Downloadable!] (restricted)
  5. Bulow, Jeremy I, 1982. "Durable-Goods Monopolists," Journal of Political Economy, University of Chicago Press, vol. 90(2), pages 314-32, April. [Downloadable!] (restricted)
  6. Coase, Ronald H, 1972. "Durability and Monopoly," Journal of Law & Economics, University of Chicago Press, vol. 15(1), pages 143-49, April.
  7. Maskin, Eric, 1999. "Nash Equilibrium and Welfare Optimality," Review of Economic Studies, Blackwell Publishing, vol. 66(1), pages 23-38, January. [Downloadable!] (restricted)
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  8. Mertens, J. F., 2003. "The limit-price mechanism," Journal of Mathematical Economics, Elsevier, vol. 39(5-6), pages 433-528, July. [Downloadable!] (restricted)
    Other versions:
  9. Hurwicz, L, 1979. "Outcome Functions Yielding Walrasian and Lindahl Allocations at Nash Equilibrium Points," Review of Economic Studies, Blackwell Publishing, vol. 46(2), pages 217-25, April. [Downloadable!] (restricted)
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