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Perfect Competition in a Bilateral Monopoly

Author

Listed:
  • Pradeep Dubey

    () (Center for Game Theory, Dept. of Economics, SUNY at Stony Brook and Cowles Foundation, Yale University)

  • Dieter Sondermann

    (Department of Economics, University of Bonn, Bonn.)

Abstract

We show that if limit orders are required to vary smoothly, then strategic (Nash) equilibria of the double auction mechanism yield competitive (Walras) allocations. It is not necessary to have competitors on any side of any market: smooth trading is a substitute for price wars. In particular, Nash equilibria are Walrasian even in a bilateral monopoly.

Suggested Citation

  • Pradeep Dubey & Dieter Sondermann, 2005. "Perfect Competition in a Bilateral Monopoly," Department of Economics Working Papers 05-01, Stony Brook University, Department of Economics.
  • Handle: RePEc:nys:sunysb:05-01
    as

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    File URL: http://www.stonybrook.edu/commcms/economics/research/papers/2005/Perfectcomp.pdf
    File Function: First version, 2005
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    References listed on IDEAS

    as
    1. L. Hurwicz, 1979. "Outcome Functions Yielding Walrasian and Lindahl Allocations at Nash Equilibrium Points," Review of Economic Studies, Oxford University Press, vol. 46(2), pages 217-225.
    2. Mas-Colell, Andreu, 1980. "Noncooperative approaches to the theory of perfect competition: Presentation," Journal of Economic Theory, Elsevier, vol. 22(2), pages 121-135, April.
    3. Bulow, Jeremy I, 1982. "Durable-Goods Monopolists," Journal of Political Economy, University of Chicago Press, vol. 90(2), pages 314-332, April.
    4. Mertens, J. F., 2003. "The limit-price mechanism," Journal of Mathematical Economics, Elsevier, vol. 39(5-6), pages 433-528, July.
    5. Eric Maskin, 1999. "Nash Equilibrium and Welfare Optimality," Review of Economic Studies, Oxford University Press, vol. 66(1), pages 23-38.
    6. Dubey, Pradeep, 1982. "Price-Quantity Strategic Market Games," Econometrica, Econometric Society, vol. 50(1), pages 111-126, January.
    7. Schmeidler, David, 1980. "Walrasian Analysis via Strategic Outcome Functions," Econometrica, Econometric Society, vol. 48(7), pages 1585-1593, November.
    8. Sahi, Siddhartha & Yao, Shuntian, 1989. "The non-cooperative equilibria of a trading economy with complete markets and consistent prices," Journal of Mathematical Economics, Elsevier, vol. 18(4), pages 325-346, September.
    9. Coase, Ronald H, 1972. "Durability and Monopoly," Journal of Law and Economics, University of Chicago Press, vol. 15(1), pages 143-149, April.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    Limit orders; double auction; Nash equilibria; Walras equilibria; perfect competition; bilateral monopoly; mechanism design;

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • D41 - Microeconomics - - Market Structure, Pricing, and Design - - - Perfect Competition
    • D42 - Microeconomics - - Market Structure, Pricing, and Design - - - Monopoly
    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions
    • D61 - Microeconomics - - Welfare Economics - - - Allocative Efficiency; Cost-Benefit Analysis

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