CFDP 895

Repeated Trade and the Velocity of Money

Author(s): 

Publication Date: January 1989

Pages: 16

Abstract: 

There are two sources of inefficiency of strategic equilibria (SE) in market mechanisms. The first is the oligopolistic effect, which occurs when an agent can single-handedly influence prices. With a continuum of agents we get “perfect competition” and this effect is, of course, wiped out. But the inefficiency of SE’s may nevertheless persist because agents are not “perfectly liquid,” i.e., the constraints of the mechanism are such that they cannot carry out arbitrary trades at the market prices. Our main result is that, if enough repeated rounds of trade are permitted within a single utility period, then the liquidity problem is overcome: SE outcomes turn out to be not only efficient but, in fact, Walrasian.

Keywords: 

Walrasian equilibrium, oligopoly, trading

JEL Classification Codes:  021, 311

See CFP: 842