Repeated Trade and the Velocity of Money
There are two sources of inefficiency of strategic equilibria (SE) in market mechanisms. The first is the oligopolistic effect, which occurs when an agent can single-handedly influence prices. With a continuum of agents we get "perfect competition" and this effect is, of course, wiped out. But the inefficiency of SE's may nevertheless persist because agents are not "perfectly liquid," i.e., the constraints of the mechanism are such that they cannot carry out arbitrary trades at the market prices. Our main result is that, if enough repeated rounds of trade are permitted within a single utility period, then the liquidity problem is overcome: SE outcomes turn out to be not only efficient but, in fact, Walrasian.
|Date of creation:||Jan 1989|
|Date of revision:|
|Publication status:||Published in Journal of Mathematical Economics (1993), 22: 125-137|
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- Pradeep Dubey & Martin Shubik, 1979. "A Strategic Market Game with Price and Quantity Strategies," Cowles Foundation Discussion Papers 521, Cowles Foundation for Research in Economics, Yale University.
- Rabah Amir & Siddhartha Sahi & Martin Shubik, 1986.
"A Strategic Market Game with Complete Markets,"
Cowles Foundation Discussion Papers
814R, Cowles Foundation for Research in Economics, Yale University, revised Sep 1987.
- 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 937-68, October.
- Dubey, Pradeep, 1982.
"Price-Quantity Strategic Market Games,"
Econometric Society, vol. 50(1), pages 111-26, January.
- Dubey, Pradeep & Mas-Colell, Andreau & Shubik, Martin, 1980. "Efficiency properties of strategies market games: An axiomatic approach," Journal of Economic Theory, Elsevier, vol. 22(2), pages 339-362, April.
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