(Translated by https://www.hiragana.jp/)
Convergence to Price-Taking Behavior in a Simple Market
IDEAS home Printed from https://ideas.repec.org/p/nwu/cmsems/914.html
   My bibliography  Save this paper

Convergence to Price-Taking Behavior in a Simple Market

Author

Listed:
  • Aldo Rustichini

Abstract

An independent private values model of trade with m buyers and m sellers is considered in which price is chosen to equate revealed demand and supply. In ever symmetric Bayesian Nash equilibrium, each trader does not act as a price-taker, but instead strategically misrepresents his true demand/supply to influence price in his favor. This misrepresentation causes inefficiency. It is shown that the amount by which a trader misreports is 0(1/m) and the corresponding influence is 0(1/m^2). Price-taking behavior and its associated efficiency thus quickly emerges despite the asymmetric information and the noncooperative behavior of traders.

Suggested Citation

  • Aldo Rustichini, 1990. "Convergence to Price-Taking Behavior in a Simple Market," Discussion Papers 914, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
    • Handle: RePEc:nwu:cmsems:914
    as

    Download full text from publisher

    File URL: http://www.kellogg.northwestern.edu/research/math/papers/914.pdf
    File Function: main text
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Holmstrom, Bengt & Myerson, Roger B, 1983. "Efficient and Durable Decision Rules with Incomplete Information," Econometrica, Econometric Society, vol. 51(6), pages 1799-1819, November.
    2. Wolinsky, Asher, 1990. "Information Revelation in a Market with Pairwise Meetings," Econometrica, Econometric Society, vol. 58(1), pages 1-23, January.
    3. Wilson, Robert B, 1985. "Incentive Efficiency of Double Auctions," Econometrica, Econometric Society, vol. 53(5), pages 1101-1115, September.
    4. Mark A. Satterthwaite & Steven R. Williams, 1989. "The Rate of Convergence to Efficiency in the Buyer's Bid Double Auction as the Market Becomes Large," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 56(4), pages 477-498.
    5. Satterthwaite, Mark A. & Williams, Steven R., 1989. "Bilateral trade with the sealed bid k-double auction: Existence and efficiency," Journal of Economic Theory, Elsevier, vol. 48(1), pages 107-133, June.
    6. Milgrom, Paul R & Weber, Robert J, 1982. "A Theory of Auctions and Competitive Bidding," Econometrica, Econometric Society, vol. 50(5), pages 1089-1122, September.
    7. Roberts, Donald John & Postlewaite, Andrew, 1976. "The Incentives for Price-Taking Behavior in Large Exchange Economies," Econometrica, Econometric Society, vol. 44(1), pages 115-127, January.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Rustichini, Aldo & Satterthwaite, Mark A & Williams, Steven R, 1994. "Convergence to Efficiency in a Simple Market with Incomplete Information," Econometrica, Econometric Society, vol. 62(5), pages 1041-1063, September.
    2. Mark A. Satterthwaite & Steven R. Williams, 1991. "The Double Auction Market: Institutions," Discussion Papers 971, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
    3. Herrmann, John D. & Kahn, Peter J., 1999. "A continuity property for local price adjustment mechanisms," Journal of Mathematical Economics, Elsevier, vol. 31(4), pages 419-453, May.
    4. Joel I. Singer, 2002. "Double Auctions Across a Constrained Transmission Line," Operations Research, INFORMS, vol. 50(3), pages 449-461, June.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Rustichini, Aldo & Satterthwaite, Mark A & Williams, Steven R, 1994. "Convergence to Efficiency in a Simple Market with Incomplete Information," Econometrica, Econometric Society, vol. 62(5), pages 1041-1063, September.
    2. Satterthwaite, Mark A. & Williams, Steven R. & Zachariadis, Konstantinos E., 2022. "Price discovery using a double auction," Games and Economic Behavior, Elsevier, vol. 131(C), pages 57-83.
    3. Thomas A. Gresik & Mark A. Satterthwaite, 1985. "The Rate at Which a Simple Market Becomes Efficient as the Number of Traders Increases: An Asymptotic Result for Optimal Trading Mechanisms," Discussion Papers 641, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
    4. Kadan, Ohad, 2007. "Equilibrium in the two-player, k-double auction with affiliated private values," Journal of Economic Theory, Elsevier, vol. 135(1), pages 495-513, July.
    5. Zacharias, Eleftherios & Williams, Steven R., 2001. "Ex Post Efficiency in the Buyer's Bid Double Auction When Demand Can Be Arbitrarily Larger Than Supply," Journal of Economic Theory, Elsevier, vol. 97(1), pages 175-190, March.
    6. Ohad Kadan, 2004. "Equilibrium in the Two Player, k-Double Auction with Affiliate Private Values," Working Papers 2004.12, Fondazione Eni Enrico Mattei.
    7. Shneyerov, Artyom & Wong, Adam Chi Leung, 2010. "The rate of convergence to perfect competition of matching and bargaining mechanisms," Journal of Economic Theory, Elsevier, vol. 145(3), pages 1164-1187, May.
    8. Peters, Michael & Severinov, Sergei, 2006. "Internet auctions with many traders," Journal of Economic Theory, Elsevier, vol. 130(1), pages 220-245, September.
    9. Hu Lu & Jacques Robert, 2000. "Optimal Trading Mechanisms with Ex Ante Unidentified Traders," Econometric Society World Congress 2000 Contributed Papers 1612, Econometric Society.
    10. Lu, Hu & Robert, Jacques, 2001. "Optimal Trading Mechanisms with Ex Ante Unidentified Traders," Journal of Economic Theory, Elsevier, vol. 97(1), pages 50-80, March.
    11. Kadan, Ohad, 2006. "So who gains from a small tick size?," Journal of Financial Intermediation, Elsevier, vol. 15(1), pages 32-66, January.
    12. Mark A. Satterthwaite & Steven R. Williams, 1988. "The Rate of Convergence to Efficiency In The Buyer's BidDouble Auction As The Market Becomes Large," Discussion Papers 741, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
    13. Serkan Kucuksenel, 2012. "Interim efficient auctions with interdependent valuations," Journal of Economics, Springer, vol. 106(1), pages 83-93, May.
    14. Chakraborty, Archishman & Pagano, Michael S. & Schwartz, Robert A., 2012. "Order revelation at market openings," Journal of Financial Markets, Elsevier, vol. 15(2), pages 127-150.
    15. Yoon, Kiho, 2001. "The Modified Vickrey Double Auction," Journal of Economic Theory, Elsevier, vol. 101(2), pages 572-584, December.
    16. Cramton, Peter & Gibbons, Robert & Klemperer, Paul, 1987. "Dissolving a Partnership Efficiently," Econometrica, Econometric Society, vol. 55(3), pages 615-632, May.
    17. Jin Yeub Kim, 2022. "Neutral public good mechanisms," PLOS ONE, Public Library of Science, vol. 17(4), pages 1-16, April.
    18. Galit Ashkenazi-Golan & Yevgeny Tsodikovich & Yannick Viossat, 2023. "I want to tell you? Maximizing revenue in first-price two-stage auctions," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 76(4), pages 1329-1362, November.
    19. Giuseppe Attanasi & Samuele Centorrino & Elena Manzoni, 2020. "Zero-Intelligence vs. Human Agents: An Experimental Analysis of the Efficiency of Double Auctions and Over-the-Counter Markets of Varying Sizes," Working Papers 05/2020, University of Verona, Department of Economics.
    20. Fudenberg, Drew & Mobius, Markus & Szeidl, Adam, 2007. "Existence of equilibrium in large double auctions," Journal of Economic Theory, Elsevier, vol. 133(1), pages 550-567, March.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:nwu:cmsems:914. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Fran Walker (email available below). General contact details of provider: https://edirc.repec.org/data/cmnwuus.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.