The competitive market paradox
The competitive market model is a paradoxical. In perfect competition, agents cannot influence price: they only select an output quantity. Such passive behavior doesn’t conform to the intuitive notion of competition. This paper describes an experiment which demonstrates that near or even at a competitive equilibrium price, competition is undiminished. A substantial difference between the performance of sellers and buyers frequently results from this vigorous competition, even with low price variability and approximate efficiency. In double auction experiment sessions conducted with both automated and human agents, exogenous variation of the pace of asks and bids of automated agents demonstrates that the performance difference between sellers and buyers results primarily from a difference between the pace of asks and bids. If the buyers’ pace is slower than sellers’ pace, buyers make price concessions less frequently than sellers so that prices move below the equilibrium price. Then more buyers become active and fewer sellers remain active. Prices stabilize when changes to the numbers of active buyers and sellers offset the superior bargaining capability of one side or the other. In competitive equilibrium, to a first approximation agents are price takers, but that doesn’t preclude vigorous competition: competitive behavior moves to the dimension of bargaining pace.
(This abstract was borrowed from another version of this item.)
If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Gjerstad, S. & Dickhaut, J., 1995.
"Price Formation in Double Auctions,"
284, Minnesota - Center for Economic Research.
- Ariel Rubinstein, 2010.
"Perfect Equilibrium in a Bargaining Model,"
Levine's Working Paper Archive
661465000000000387, David K. Levine.
- Smith, Vernon L, 1982. "Microeconomic Systems as an Experimental Science," American Economic Review, American Economic Association, vol. 72(5), pages 923-55, December.
- Williams, Arlington W & Smith, Vernon L, 1984. "Cyclical Double-Auction Markets with and without Speculators," The Journal of Business, University of Chicago Press, vol. 57(1), pages 1-33, January.
- Gode, Dhananjay K & Sunder, Shyam, 1993. "Allocative Efficiency of Markets with Zero-Intelligence Traders: Market as a Partial Substitute for Individual Rationality," Journal of Political Economy, University of Chicago Press, vol. 101(1), pages 119-37, February.
- Cason, Timothy N. & Friedman, Daniel, 1996.
"Price formation in double auction markets,"
Journal of Economic Dynamics and Control,
Elsevier, vol. 20(8), pages 1307-1337, August.
- Smith, Vernon L. & Williams, Arlington W., 1982. "The effects of rent asymmetries in experimental auction markets," Journal of Economic Behavior & Organization, Elsevier, vol. 3(1), pages 99-116, March.
- Easley, David & Ledyard, John., . "Theories of Price Formation and Exchange in Double Oral Auctions," Working Papers 611, California Institute of Technology, Division of the Humanities and Social Sciences.
When requesting a correction, please mention this item's handle: RePEc:eee:dyncon:v:31:y:2007:i:5:p:1753-1780. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Shamier, Wendy)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.