We explore whether competitive outcomes arise in an experimental implementation of a market game, introduced by Shubik (1972). Market games obtain Pareto inferior (strict) Nash equilibria, in which some, and possibly all, markets are closed. We find that subjects do not coordinate on autarkic Nash equilibria, but favor more efficient `full` Nash equilibria in which all markets are open and there is a large volume of trade. We further find that as the number of agents participating in the market game increases, the full Nash equilibria they achieve come closer to approximating the associated Walrasian equilibrium of the economy. Motivated by these findings, we investigate theoretically whether evolutionary forces lead to Walrasian outcomes in such games. We introduce a strong version of evolutionary stable strategies (SESS) for finite populations. Our concept requires stability against deviations by coalitions of agents. A small coalition of trading agents is sufficient for Pareto improving trade to be generated. In addition, provided that agents lack market power, Nash equilibria corresponding to approximate competitive outcomes constitute the only approximate SESS.
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Paper provided by University of Pittsburgh, Department of Economics in its series Working Papers with number
366.
Find related papers by JEL classification: C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary Games C92 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Group Behavior D51 - Microeconomics - - General Equilibrium and Disequilibrium - - - Exchange and Production Economies
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