CFDP 1534

Perfect Competition in a Bilateral Monopoly (In Honor of Martin Shubik)

Author(s): 

Publication Date: September 2005

Pages: 24

Abstract: 

We show that if limit orders are required to vary smoothly, then strategic (Nash) equilibria of the double auction mechanism yield competitive (Walras) allocations. It is not necessary to have competitors on any side of any market: smooth trading is a substitute for price wars. In particular, Nash equilibria are Walrasian even in a bilateral monopoly.

Keywords: 

Limit orders, double auction, Nash equilibria, Walras equilibria, perfect competition, bilateral monopoly, mechanism design

JEL Classification Codes:  C72, D41, D42, D44, D61

Note: 

Published in Games and Economic Behavior (Special Issue in Honor of Martin Shubik) (January 2009), 65(1), 124-141 [DOI]