Resource title

Convergence to competitive equilibria in a double auction

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I study a double auction modeled as a strategic market game with limit prices based on the limit-price mechanism (Mertens, 1996). I address the classic questions of convergence to competitive equilibria and the existence of no-trade equilibria that are sometimes considered to be pathological. I show that the set of equilibria of this game converges to the set containing competitive equilibria and no-trade, when players are replicated. Moreover, two rounds of iterated deletion of weakly dominated strategies eliminate the no-trade equilibria. Hence replication paired with two rounds of iterated dominance gives a prediction of competitive equilibrium.

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en

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application/pdf

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http://flora.insead.edu/fichiersti_wp/inseadwp1999/99-29.pdf

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Copyright INSEAD. All rights reserved