Dynamic Imperfectly Competitive Markets with Private Information

48 Pages Posted: 20 Mar 2019 Last revised: 11 Dec 2019

See all articles by Marzena J. Rostek

Marzena J. Rostek

University of Wisconsin - Madison

Ji Hee Yoon

University College London - Department of Economics

Date Written: December 22, 2018

Abstract

We study markets based on the uniform-price double auction with T periods and I traders who have private information about their demands. The model accommodates the heterogeneity in the traders' risk preferences, the statistics of outcomes they condition their demands on, and general interdependence in traders' valuations. We show that the traders' price impacts are sufficient statistics for traders’ equilibrium demands, including inference coefficients. This allows a non-recursive equilibrium characterization which eliminates the information about the joint distribution of future prices that a recursive characterization would require. A trader optimizes with respect to a directional derivative. Equilibrium strategies depend on the entire history. In markets with heterogeneous traders, changes in transparency affect the traders’ price impact and the distribution of risk among the traders. For any information structure, increasing transparency in early rounds increases efficiency provided that there are sufficiently many trading rounds; introducing sufficiently many rounds improves welfare.

Keywords: Imperfectly competitive markets, Uniform-price auction, Divisible goods, Transparency, Contingent variables

Suggested Citation

Rostek, Marzena J. and Yoon, Ji Hee, Dynamic Imperfectly Competitive Markets with Private Information (December 22, 2018). Available at SSRN: https://ssrn.com/abstract=3344645 or http://dx.doi.org/10.2139/ssrn.3344645

Marzena J. Rostek

University of Wisconsin - Madison ( email )

1180 Observatory Drive
Madison, WI 53703
United States
(608) 262-6723 (Phone)
(608) 262-2033 (Fax)

HOME PAGE: http://www.ssc.wisc.edu/~mrostek

Ji Hee Yoon (Contact Author)

University College London - Department of Economics ( email )

Drayton House, 30 Gordon Street
30 Gordon Street
London, WC1H 0AX
United Kingdom

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