Competitive Behavior in Market Games: Evidence and Theory

Duffy, John and Matros, Alexander and Temzelides, Ted (2011) Competitive Behavior in Market Games: Evidence and Theory. Journal of Economic Theory, 146 (4). pp. 1437-1463. ISSN 0022-0531

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Abstract

We explore whether competitive outcomes arise in an experimental implementation of a market game, introduced by Shubik (1972). Market games obtain Pareto inferior (strict) Nash equilibria, in which some markets are closed. We find that subjects do not coordinate on autarkic Nash equilibria, but favor more efficient Nash equilibria in which all markets are open. As the number of subjects participating in the market game increases, the Nash equilibrium they achieve approximates the associated Walrasian equilibrium of the underlying economy. Motivated by these findings, we investigate theoretically whether evolutionary forces lead to Walrasian outcomes in market games. We introduce a strong version of evolutionary stable strategies (SESS) for finite populations. Our concept requires stability against deviations by coalitions of agents. A small coalition of trading agents is sufficient for Pareto-improving trade to be generated. In addition, provided that agents lack market power, Nash equilibria corresponding to approximate competitive outcomes constitute the only approximate SESS.

Item Type:
Journal Article
Journal or Publication Title:
Journal of Economic Theory
Uncontrolled Keywords:
/dk/atira/pure/subjectarea/asjc/2000/2002
Subjects:
ID Code:
60737
Deposited By:
Deposited On:
14 Dec 2012 15:56
Refereed?:
Yes
Published?:
Published
Last Modified:
05 Aug 2020 02:09