Perfect Competition in a Bilateral Monopoly (in Honor of Martin Shubik)

25 Pages Posted: 30 Sep 2005

See all articles by Pradeep K. Dubey

Pradeep K. Dubey

SUNY Stony Brook - Center for Game Theory in Economics

Dieter Sondermann

University of Bonn - Institute of Statistics

Date Written: September 2005

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.

Keywords: Limit orders, double auction, Nash equilibria, Walras equilibria, perfect competition, bilateral monopoly, mechanism design

JEL Classification: C72, D41, D42, D44, D61

Suggested Citation

Dubey, Pradeep K. and Sondermann, Dieter, Perfect Competition in a Bilateral Monopoly (in Honor of Martin Shubik) (September 2005). Cowles Foundation Discussion Paper No. 1534, Available at SSRN: https://ssrn.com/abstract=816105

Pradeep K. Dubey (Contact Author)

SUNY Stony Brook - Center for Game Theory in Economics ( email )

Stony Brook, NY 11794
United States
631-632-7555 (Phone)
631-632-7516 (Fax)

Dieter Sondermann

University of Bonn - Institute of Statistics ( email )

Adenauerallee 24-26
53113 Bonn, 53113
Germany

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