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Smooth Strategic Market Game Mechanisms with Coordinating Market Prices

Author

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  • Alex Dickson

    (Keele University, Department of Economics)

Abstract

This paper analyses strategic trade within pure exchange economies. In the tradition of the ‘Shapley-Shubik’ case, the signals agents send to the markets are aggregated into market prices, proceeding which net trades are determined via a distribution mechanism dependent on both individual activity and prices. The pricing and distribution mechanisms we use are abstractly given smooth mappings, which, combined with various axioms, propagate several desirable properties consistent with elementary economic intuition. ‘Active interior’ Nash equilibria in the defined normal form game are characterised in terms of first order conditions, using which we demonstrate that in finite economies, equilibria resulting from trade within the market game are never Walrasian, and, furthermore, they are Pareto inefficient. The convergence of a sequence of active interior Nash equilibria to a Walrasian equilibrium of the underlying competitive economy is also investigated.

Suggested Citation

  • Alex Dickson, 2003. "Smooth Strategic Market Game Mechanisms with Coordinating Market Prices," Keele Economics Research Papers KERP 2003/03, Centre for Economic Research, Keele University.
    • Handle: RePEc:kee:kerpuk:2003/03
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    File URL: http://www.keele.ac.uk/depts/ec/wpapers/kerp0303.pdf
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    More about this item

    Keywords

    Strategic market games; non-cooperative trade; imperfect competition;
    All these keywords.

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • D50 - Microeconomics - - General Equilibrium and Disequilibrium - - - General
    • D51 - Microeconomics - - General Equilibrium and Disequilibrium - - - Exchange and Production Economies

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