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A Strategic market game with limit prices

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In the strategic market games literature following Shapley and Shubik (e.g. 1977), there is always a no-trade equilibrium in which no one offers to sell anything. The author studies a novel market game based on the limit-price mechanism of Mertens (1996) for the case of two goods. Because they allow players to refuse to trade at unfavorable prices, limit-prices have the potential to eliminate no-trade equilibria. In this paper the author characterizes dominance patterns and studies the equilibrium set of the game. She finds that no-trade is robust, in that it is a Nash equilibrium in undominated strategies of all the replicated games.

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