Strategic market games with a finite horizon and incomplete markets
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 $\eta$ -efficient allocations when the number of players tends to infinity. Finally, strategic speculative bubbles may survive at full subgame-perfect equilibria. Copyright Springer-Verlag Berlin/Heidelberg 2004
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Volume (Year): 23 (2004)
Issue (Month): 3 (March)
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