Information and strategic behavior

Marzena Rostek and Marek Weretka

Journal of Economic Theory, 2015, vol. 158, issue PB, 536-557

Abstract: Does encouraging trader participation enhance market competitiveness? This paper shows that, when trader preferences are interdependent, trader market power does not necessarily decrease with greater participation, and traders need not become price takers in large markets. Thus, larger markets can be less liquid and associated with lower ex ante welfare. In the linear-normal model, the necessary and sufficient condition on the information structure is provided under which price impact is monotone in market size. A condition is given when the rational expectations equilibrium, which is typically not fully revealing within the considered class of preference interdependencies, is obtained in large markets.

Keywords: Double auction; Price impact; Price informativeness; Rational expectations; Market design (search for similar items in EconPapers)
JEL-codes: D43 D44 D82 G14 L13 (search for similar items in EconPapers)
Date: 2015
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (23)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jetheo:v:158:y:2015:i:pb:p:536-557

DOI: 10.1016/j.jet.2014.12.005

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