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Retrading in Market Games

Author

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  • Sayantan Ghosal

    () (Economics Department, University of Warwick)

  • Massimo Morelli

    () (Department of Economics, Ohio State University)

Abstract

When agents are not price takers, they typically cannot obtain an efficient reallocation of resources in one round of trade. This paper presents a noncooperative model of imperfect competition where agents can retrade allocations,consistent with the Edgeworth’s idea of recontracting. We show that there are allocations on the Pareto frontier that can be approximated arbitrarily closely when trade is myopic, i.e., when agents play a static Nash equilibrium at every round of retrading. We then show that the converging sequence of allocations generated by myopic retrading can also be supported along some retrade-proof Subgame Perfect Equilibrium path when traders anticipate future rounds of retrading.

Suggested Citation

  • Sayantan Ghosal & Massimo Morelli, 2002. "Retrading in Market Games," Economics Working Papers 0012, Institute for Advanced Study, School of Social Science.
  • Handle: RePEc:ads:wpaper:0012
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    References listed on IDEAS

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    Cited by:

    1. Duffy, John & Matros, Alexander & Temzelides, Ted, 2011. "Competitive behavior in market games: Evidence and theory," Journal of Economic Theory, Elsevier, vol. 146(4), pages 1437-1463, July.
    2. repec:eee:beexfi:v:9:y:2016:i:c:p:20-38 is not listed on IDEAS
    3. Flåm, Sjur Didrik & Gramstad, Kjetil, 2012. "Direct Exchange in Linear Economies," Working Papers in Economics 05/12, University of Bergen, Department of Economics.
    4. Mandel, Antoine & Gintis, Herbert, 2016. "Decentralized Pricing and the equivalence between Nash and Walrasian equilibrium," Journal of Mathematical Economics, Elsevier, vol. 63(C), pages 84-92.
    5. Liao, Mouhua, 2016. "A market game with symmetric limit orders," Journal of Mathematical Economics, Elsevier, vol. 64(C), pages 66-76.
    6. Ghosal, Sayantan & Porter, James, 2013. "Decentralised exchange, out-of-equilibrium dynamics and convergence to efficiency," Mathematical Social Sciences, Elsevier, vol. 66(1), pages 1-21.
    7. repec:pit:wpaper:201 is not listed on IDEAS
    8. Jamsheed Shorish, 2010. "Functional rational expectations equilibria in market games," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 43(3), pages 351-376, June.
    9. Ghosal, Sayantan & Porter, James, 2010. "Out of Equilibrium Dynamics with Decentralized Exchange Cautious Trading and Convergence to Efficiency," The Warwick Economics Research Paper Series (TWERPS) 928, University of Warwick, Department of Economics.
    10. Dmitry Levando, 2012. "A Survey Of Strategic Market Games," Economic Annals, Faculty of Economics, University of Belgrade, vol. 57(194), pages 63-106, July - Se.
    11. Keshab BHATTARAI, "undated". "Bargaining, Coalitions, Signalling and Repeated Games for Economic Development and Poverty Alleviation," EcoMod2008 23800012, EcoMod.
    12. Huber, Juergen & Shubik, Martin & Sunder, Shyam, 2016. "Default penalty as a selection mechanism among multiple equilibria," Journal of Behavioral and Experimental Finance, Elsevier, vol. 9(C), pages 20-38.
    13. Gaël Giraud, 2004. "The limit-price exchange process," Cahiers de la Maison des Sciences Economiques b04118, Université Panthéon-Sorbonne (Paris 1).
    14. Sjur Didrik Flåm, 2013. "Reaching Market Equilibrium Merely by Bilateral Barters," CESifo Working Paper Series 4504, CESifo Group Munich.
    15. repec:pit:wpaper:366 is not listed on IDEAS
    16. Peck, James, 2014. "A battle of informed traders and the market game foundations for rational expectations equilibrium," Games and Economic Behavior, Elsevier, vol. 88(C), pages 153-173.
    17. Giraud, Gael, 2003. "Strategic market games: an introduction," Journal of Mathematical Economics, Elsevier, vol. 39(5-6), pages 355-375, July.

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