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Strategic Market Games with a Finite Horizon and Incomplete

Author

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  • Gaël GIRAUD
  • Sonia WEYERS

Abstract

We study a strategic market game associated to an intertemporal economy with a finite horizon and incomplete markets. We demonstrate that generically, for any finite number of players, every sequentially strictly individually rational and default-free stream of allocations can be approximated by a full subgame-perfect equilibrium. As a consequence, imperfect competition may Pareto-dominate perfect competition when markets are incomplete. Moreover — and this contrasts with the main message conveyed by the market games literature — there exists a large open set of initial endowments for which full subgame-perfect equilibria do not converge to η- efficient allocations when the number of players tends to infinity. Finally, strategic speculative bubbles may survive at full subgame-perfect equilibria.

Suggested Citation

  • Gaël GIRAUD & Sonia WEYERS, 2003. "Strategic Market Games with a Finite Horizon and Incomplete," Working Papers of BETA 2003-04, Bureau d'Economie Théorique et Appliquée, UDS, Strasbourg.
  • Handle: RePEc:ulp:sbbeta:2003-04
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    File URL: http://www.beta-umr7522.fr/productions/publications/2003/2003-04.pdf
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    References listed on IDEAS

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    7. Atsushi Kajii & Antonio Villanacci & Alessandro Citanna, 1998. "Constrained suboptimality in incomplete markets: a general approach and two applications," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 11(3), pages 495-521.
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    Cited by:

    1. Régis Breton & Bertrand Gobillard, 2005. "Robustness of equilibrium price dispersion in finite market games," Post-Print halshs-00257207, HAL.
    2. Liao, Mouhua, 2016. "A market game with symmetric limit orders," Journal of Mathematical Economics, Elsevier, vol. 64(C), pages 66-76.

    More about this item

    Keywords

    Market Games; Folk Theorem; Incomplete Markets; Bubbles.;

    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
    • D52 - Microeconomics - - General Equilibrium and Disequilibrium - - - Incomplete Markets

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