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Learning in a Perfectly Competitive Market

Author

Listed:
  • Leonard J. Mirman
  • Egas M. Salgueiro
  • Marc Santugini

Abstract

We study learning in perfect competition. A price-taking firm sells a good whose quality is unknown to some buyers. The uninformed buyers use the price to infer information about quality. The presence of noise on the supply prevents perfect learning. Even though the firm is a price-taker, information is disseminated though the price. The shape of the supply curve influences the amount of information contained in the price, which, in turn, affects the competitive equilibrium through the learning process of the uninformed buyers.

Suggested Citation

  • Leonard J. Mirman & Egas M. Salgueiro & Marc Santugini, 2014. "Learning in a Perfectly Competitive Market," Cahiers de recherche 1423, CIRPEE.
  • Handle: RePEc:lvl:lacicr:1423
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    File URL: http://www.cirpee.org/fileadmin/documents/Cahiers_2014/CIRPEE14-23.pdf
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    References listed on IDEAS

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    1. Baron, David P, 1970. "Price Uncertainty, Utility, and Industry Equilibrium in Pure Competition," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 11(3), pages 463-480, October.
    2. Sanford Grossman, 1989. "The Informational Role of Prices," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262572141, March.
    3. Mirman, Leonard J. & Salgueiro, Egas M. & Santugini, Marc, 2014. "Noisy signaling in monopoly," International Review of Economics & Finance, Elsevier, vol. 29(C), pages 504-511.
    4. Grossman, Sanford J, 1976. "On the Efficiency of Competitive Stock Markets Where Trades Have Diverse Information," Journal of Finance, American Finance Association, vol. 31(2), pages 573-585, May.
    5. Grossman, Sanford, 1978. "Further results on the informational efficiency of competitive stock markets," Journal of Economic Theory, Elsevier, vol. 18(1), pages 81-101, June.
    6. Leonard J. Mirman & Neelam Jain, 2000. "Real and financial effects of insider trading with correlated signals," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 16(2), pages 333-353.
    7. Sanford Grossman, 1978. "Further results on the informational efficiency of competitive stock markets," Special Studies Papers 114, Board of Governors of the Federal Reserve System (U.S.).
    8. Kyle, Albert S, 1985. "Continuous Auctions and Insider Trading," Econometrica, Econometric Society, vol. 53(6), pages 1315-1335, November.
    9. Vives, Xavier, 1988. "Aggregation of Information in Large Cournot Markets," Econometrica, Econometric Society, vol. 56(4), pages 851-876, July.
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    Cited by:

    1. Leonard J. Mirman & Egas M. Salgueiro & Marc Santugini, 2015. "Noisy Learning in a Competitive Market with Risk Aversion," Cahiers de recherche 1502, CIRPEE.

    More about this item

    Keywords

    Asymmetric information; Learning; Perfect competition; Rational expectations;

    JEL classification:

    • D2 - Microeconomics - - Production and Organizations
    • D41 - Microeconomics - - Market Structure, Pricing, and Design - - - Perfect Competition
    • D8 - Microeconomics - - Information, Knowledge, and Uncertainty
    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance

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