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Strategic Market Games with a Finite Horizon and Incomplete

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Author Info
Gaël GIRAUD
Sonia WEYERS
Abstract

We study a strategic market game associated to an intertemporal economy with a finite horizon and incomplete markets. We demonstrate that generically, for any finite number of players, every sequentially strictly individually rational and default-free stream of allocations can be approximated by a full subgame-perfect equilibrium. As a consequence, imperfect competition may Pareto-dominate perfect competition when markets are incomplete. Moreover — and this contrasts with the main message conveyed by the market games literature — there exists a large open set of initial endowments for which full subgame-perfect equilibria do not converge to η- efficient allocations when the number of players tends to infinity. Finally, strategic speculative bubbles may survive at full subgame-perfect equilibria.

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Paper provided by Bureau d'Economie Théorique et Appliquée, ULP, Strasbourg in its series Working Papers of BETA with number 2003-04.

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Date of creation: 2003
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Handle: RePEc:ulp:sbbeta:2003-04

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Related research
Keywords: Market Games; Folk Theorem; Incomplete Markets; Bubbles.;

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Find related papers by JEL classification:
C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
D43 - Microeconomics - - Market Structure and Pricing - - - Oligopoly and Other Forms of Market Imperfection
D52 - Microeconomics - - General Equilibrium and Disequilibrium - - - Incomplete Markets

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  15. Atsushi Kajii & Antonio Villanacci & Alessandro Citanna, 1998. "Constrained suboptimality in incomplete markets: a general approach and two applications," Economic Theory, Springer, vol. 11(3), pages 495-521. [Downloadable!] (restricted)
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