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Walras Retrouve: Decentralized Trading Mechanisms and the Competitive Price

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Abstract

We extend the standard analysis of decentralized markets allowing for the possibility that traders interact simultaneously with more than one trader on the opposite side if the market. In contrast to the literature, we are able to reconcile the Walrasian equilibrium with the outcome of decentralized strategic trade: we show that there exist generic matching mechanisms which determine local market conditions such that, as market frictions vanish, the expected equilibrium price is the one that would result in the static Walrasian market. At the same time, we highlight the relevance of local market conditions in the determination of equilibrium prices.

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  • Gianni De Fraja & Jozsef Sakovics, 1999. "Walras Retrouve: Decentralized Trading Mechanisms and the Competitive Price," Edinburgh School of Economics Discussion Paper Series 36, Edinburgh School of Economics, University of Edinburgh.
  • Handle: RePEc:edn:esedps:36
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