CFDP 1317

A Practical Competitive Market Model for Indivisible Commodities

Author(s): 

Publication Date: August 2001

Pages: 9

Abstract: 

A general and practical competitive market model for trading indivisible goods is introduced. There are a group of buyers and a group of sellers, and several indivisible goods. Each buyer is initially endowed with a sufficient amount of money and each seller is endowed with several units of each indivisible good. Each buyer has reservation values over bundles of indivisible goods above which he will not buy and each seller has reservation values over bundles of his own indivisible goods below which he will not sell. Buyers and sellers’ preferences depend on the bundle of indivisible goods and the quantity of money they consume. All preferences are assumed to be quasi-linear in money and money is treated as a perfectly divisible good. It is shown in an extremely simple manner that the market has a Walrasian equilibrium if and only if an associated linear program problem has an optimal solution with its value equal to the potential market value. In addition, it is shown that the equilibrium prices of the goods and the profits of the agents are the optimal solutions of the linear program problem.

Keywords: 

Market, indivisibility, Walrasian equilibrium, linear program, potential market value

JEL Classification Codes:  C6, C62, C68, D4, D41, D46, D5, D50, D51