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Competing in Several Areas Simultaneously: The Case of Strategic Asset Markets

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  • Manfred Nermuth

    () (Department of Economics, University of Vienna, Hohenstaufengasse 9, A-1010 Vienna, Austria)

Abstract

We characterize the structure of Nash equilibria for a certain class of asset market games. In equilibrium, different assets have different returns, and (risk neutral) investors with different wealth hold portfolios with different structures. In equilibrium, an asset’s return is inversely related to the elasticity of its supply. The larger an investor, the more diversified is his portfolio. Smaller investors do not hold all the assets, but achieve higher percentage returns. More generally, our results can be applied also to other “multi-market games” in which several players compete in several arenas simultaneously, like multi-market Cournot oligopolies, or multiple rent-seeking games.

Suggested Citation

  • Manfred Nermuth, 2011. "Competing in Several Areas Simultaneously: The Case of Strategic Asset Markets," Games, MDPI, Open Access Journal, vol. 2(2), pages 1-26, April.
  • Handle: RePEc:gam:jgames:v:2:y:2011:i:2:p:209-234:d:12024
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    References listed on IDEAS

    as
    1. Hens, Thorsten & Schenk-Hoppe, Klaus Reiner, 2005. "Evolutionary stability of portfolio rules in incomplete markets," Journal of Mathematical Economics, Elsevier, vol. 41(1-2), pages 43-66, February.
    2. Alos-Ferrer, Carlos & Ania, Ana B., 2005. "The asset market game," Journal of Mathematical Economics, Elsevier, vol. 41(1-2), pages 67-90, February.
    3. Fernando Vega-Redondo, 1997. "The Evolution of Walrasian Behavior," Econometrica, Econometric Society, vol. 65(2), pages 375-384, March.
    4. Shapley, Lloyd S & Shubik, Martin, 1977. "Trade Using One Commodity as a Means of Payment," Journal of Political Economy, University of Chicago Press, vol. 85(5), pages 937-968, October.
    5. Carlos Alós-Ferrer & Ana Ania, 2005. "The evolutionary stability of perfectly competitive behavior," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 26(3), pages 497-516, October.
    6. Leonidas Koutsougeras & Konstantinos Papadopoulos, 2004. "Arbitrage and equilibrium in strategic security markets," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 23(3), pages 553-568, March.
    7. Blume, Lawrence & Easley, David, 1992. "Evolution and market behavior," Journal of Economic Theory, Elsevier, vol. 58(1), pages 9-40, October.
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    More about this item

    Keywords

    asset markets; Nash Equilibrium; multigames;

    JEL classification:

    • C - Mathematical and Quantitative Methods
    • C7 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory
    • C70 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - General
    • C71 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Cooperative Games
    • 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

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