Competitive Market Achieves the Greatest Happiness of the Minimum Number

9 Pages Posted: 29 Mar 2016 Last revised: 9 May 2016

Yosuke Yasuda

Osaka University - Graduate School of Economics; National Graduate Institute for Policy Studies (GRIPS)

Date Written: May 9, 2016

Abstract

This note studies homogenous good markets, assuming that each buyer/seller has a unit demand/supply and that side payments beyond buyer-seller pairs are prohibited. We show that the quantity of good traded under the competitive market equilibrium is minimum among all Pareto efficient and individually rational allocations, provided that the definition of Pareto efficiency incorporates the presumption of no side payment. Our finding may suggest that the competitive market results in the most unequal allocation, since the number of buyers or sellers left-behind from profitable trades is maximized. Conversely, unless a demand or supply curve is completely flat, there always exists a Pareto efficient allocation that entails strictly larger number of profitable trades than the equilibrium quantity. Implications to positive analysis are also discussed.

Keywords: competitive market, equality, market design

JEL Classification: B12, B21, D40, D63

Suggested Citation

Yasuda, Yosuke, Competitive Market Achieves the Greatest Happiness of the Minimum Number (May 9, 2016). Available at SSRN: https://ssrn.com/abstract=2755893

Yosuke Yasuda (Contact Author)

Osaka University - Graduate School of Economics ( email )

1-7 Machikaneyama
Toyonaka, Osaka, 560-0043
Japan

National Graduate Institute for Policy Studies (GRIPS) ( email )

7-22-1 Roppongi, Minato-ku
Tokyo, Tokyo 106-8677
Japan

HOME PAGE: http://https://sites.google.com/site/yosukeyasuda/Home

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