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Substitute goods, auctions, and equilibrium

  • Milgrom, Paul
  • Strulovici, Bruno

This paper identifies two notions of substitutes for auction and equilibrium analysis. Weak substitutes, the usual price-theory notion, guarantees monotonicity of Tatonnement processes and convergence of clock auctions to a pseudo-equilibrium, but only strong substitutes, which treats each unit traded as a distinct good with its own price, guarantees that every pseudo-equilibrium is a Walrasian equilibrium, that the Vickrey outcome is in the core, and that the "law of aggregate demand" is satisfied. When goods are divisible, weak substitutes along with concavity guarantees all of the above properties, except for the law of aggregate demand.

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Article provided by Elsevier in its journal Journal of Economic Theory.

Volume (Year): 144 (2009)
Issue (Month): 1 (January)
Pages: 212-247

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Handle: RePEc:eee:jetheo:v:144:y:2009:i:1:p:212-247
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/622869

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  1. Milgrom, Paul, 1994. "Comparing Optima: Do Simplifying Assumptions Affect Conclusions?," Journal of Political Economy, University of Chicago Press, vol. 102(3), pages 607-15, June.
  2. Paul Milgrom, 2003. "Matching with Contracts," Working Papers 03003, Stanford University, Department of Economics.
  3. Gul, Faruk & Stacchetti, Ennio, 1999. "Walrasian Equilibrium with Gross Substitutes," Journal of Economic Theory, Elsevier, vol. 87(1), pages 95-124, July.
  4. Bikhchandani, Sushil & Mamer, John W., 1997. "Competitive Equilibrium in an Exchange Economy with Indivisibilities," Journal of Economic Theory, Elsevier, vol. 74(2), pages 385-413, June.
  5. Gul, Faruk & Stacchetti, Ennio, 2000. "The English Auction with Differentiated Commodities," Journal of Economic Theory, Elsevier, vol. 92(1), pages 66-95, May.
  6. Kelso, Alexander S, Jr & Crawford, Vincent P, 1982. "Job Matching, Coalition Formation, and Gross Substitutes," Econometrica, Econometric Society, vol. 50(6), pages 1483-1504, November.
  7. Milgrom, Paul, 1998. "Putting auction theory to work : the simultaneous ascending auction," Policy Research Working Paper Series 1986, The World Bank.
  8. Lawrence M. Ausubel & Paul Milgrom, 2002. "Ascending Auctions with Package Bidding," Working Papers 02004, Stanford University, Department of Economics.
  9. Paul Milgrom & Ilya Segal, 2002. "Envelope Theorems for Arbitrary Choice Sets," Econometrica, Econometric Society, vol. 70(2), pages 583-601, March.
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