Competition in Schedules with Traders that Neglect the Informational Content of the Price

41 Pages Posted: 27 Apr 2022

See all articles by Anna Bayona

Anna Bayona

ESADE Business School

Carolina Manzano

Universitat Rovira Virgili

Date Written: April 16, 2022

Abstract

We study a market with competition in schedules, such as in asset auctions or wholesale electricity markets, with boundedly rational sellers that partially neglect the informational content of the price. Using the cursed equilibrium concept, we find that the unique symmetric linear equilibrium with cursed sellers is more competitive, might lead to a lower trading volume, and a higher volatility of prices compared to when sellers are fully rational. Under some conditions, total surplus and profits are higher with cursed sellers than with fully rational ones. Our results critically depend on imperfect competition and on the demand elasticity.

Keywords: cursed equilibrium, bounded rationality, market power, trading volume, welfare.

JEL Classification: C72, D44, D82, G14, G40

Suggested Citation

Bayona, Anna and Manzano, Carolina, Competition in Schedules with Traders that Neglect the Informational Content of the Price (April 16, 2022). Available at SSRN: https://ssrn.com/abstract=4085637 or http://dx.doi.org/10.2139/ssrn.4085637

Anna Bayona (Contact Author)

ESADE Business School ( email )

Av. de Pedralbes, 60-62
Barcelona, 08034
Spain

Carolina Manzano

Universitat Rovira Virgili ( email )

Tarragona
Spain

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