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Efficiency and imperfect competition with incomplete markets

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  • Giraud, Gael
  • Stahn, Hubert

Abstract

We deal with the problem of providing incentives for the implementation of constrained optimal outcomes in a two-period economy with incomplete markets. Allowing both for price observation, price-manipulation and a minimal amount of coordination enables to recover (second-best) efficiency at equilibrium, therefore to do better than perfect competition. To make this point, we construct a feasible price-quantity mechanism for two-period economies. In the absence of monitoring between the first and the second period, one gets a full implementation of the (typically inefficient) GEI equilibria via Nash equilibria. By contrast, when actions are observed between the two periods, a large subset of feasible and individually rational allocations can be obtained as strategic equilibria. Furthermore, the correspondence of individually rational, second-best efficient outcomes is implemented via undominated Nash equilibria (NE).
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  • Giraud, Gael & Stahn, Hubert, 2003. "Efficiency and imperfect competition with incomplete markets," Journal of Mathematical Economics, Elsevier, vol. 39(5-6), pages 559-583, July.
  • Handle: RePEc:eee:mateco:v:39:y:2003:i:5-6:p:559-583
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    Cited by:

    1. Gaël Giraud & Hubert Stahn, 2008. "On Shapley–Shubik equilibria with financial markets," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 35(3), pages 469-496, June.
    2. Hens, Thorsten & Reimann, Stefan & Vogt, Bodo, 2004. "Nash competitive equilibria and two-period fund separation," Journal of Mathematical Economics, Elsevier, vol. 40(3-4), pages 321-346, June.
    3. Gaël Giraud & Antonin Pottier, 2016. "Debt-deflation versus the liquidity trap: the dilemma of nonconventional monetary policy," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 62(1), pages 383-408, June.
    4. Gael Giraud & Hubert Stahn, 2013. "Nash-implementation of competitive equilibria via a bounded mechanism," Review of Economic Design, Springer;Society for Economic Design, vol. 17(1), pages 43-62, March.
    5. Giraud, Gael, 2003. "Strategic market games: an introduction," Journal of Mathematical Economics, Elsevier, vol. 39(5-6), pages 355-375, July.
    6. Gaël GIRAUD & Sonia WEYERS, 2003. "Strategic Market Games with a Finite Horizon and Incomplete," Working Papers of BETA 2003-04, Bureau d'Economie Théorique et Appliquée, UDS, Strasbourg.
    7. Sonja Brangewitz & Gaël Giraud, 2012. "Learning by Trading in Infinite Horizon Strategic Market Games with Default," Documents de travail du Centre d'Economie de la Sorbonne 12062r, Université Panthéon-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne, revised Oct 2013.

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