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Convergence to competitive equilibria and elimination of no-trade in a strategic market game with limit prices (RV 99/29/EPS)

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The strategic market games literature contains many results that predict Walrasian equilibria in the competitive limit. However, they usually come at the expense of ad hoc assumptions that rule out 'pathological' no trade equilibria. This paper studies a strategic market game with limit prices. The set of Nash equilibria of this game converges to the set containing the 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 clean 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/inseadwp2000/2000-60.pdf

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Copyright INSEAD. All rights reserved