Perfect competition in an oligopoly (including bilateral monopoly)

In honor of Martin Shubik
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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.

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It is a pleasure for us to dedicate this paper to Martin Shubik who founded and developed (in collaboration with others, particularly Lloyd Shapley) the field of Strategic Market Games in a general equilibrium framework. This research was partly carried out while the authors were visiting IIASA, Laxenburg and The Institute for Advanced Studies, Hebrew University of Jerusalem. Financial support of these institutions is gratefully acknowledged. The authors also thank two anonymous referees for constructive remarks.

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