The Equilibrium Existence Duality

Elizabeth Baldwin, Ravi Jagadeesan, Paul Klemperer and Alexander Teytelboym

Journal of Political Economy, 2023, vol. 131, issue 6, 1440 - 1476

Abstract: We show that with indivisible goods, the existence of competitive equilibrium fundamentally depends on agents’ substitution effects, not their income effects. Our equilibrium existence duality allows us to transport results on the existence of competitive equilibrium from settings with transferable utility to settings with income effects. One consequence is that net substitutability—which is a strictly weaker condition than gross substitutability—is sufficient for the existence of competitive equilibrium. Further applications give new existence results beyond the case of (net) substitutes. Our results have implications for auction design.

Date: 2023
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