Pradeep Dubey () and
Dieter Sondermann Additional contact information Pradeep Dubey: Center for Game Theory, Dept. of Economics, SUNY at Stony Brook and Cowles Foundation, Yale University
Dieter Sondermann: Department of Economics, University of Bonn, Bonn.
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.