Retrading in Market Games

Sayantan Ghosal and Massimo Morelli ()

No 12, Economics Working Papers from Institute for Advanced Study, School of Social Science

Abstract: When agents are not price takers, they typically cannot obtain an efficient reallocation of resources in one round of trade. This paper presents a noncooperative model of imperfect competition where agents can retrade allocations,consistent with the Edgeworth’s idea of recontracting. We show that there are allocations on the Pareto frontier that can be approximated arbitrarily closely when trade is myopic, i.e., when agents play a static Nash equilibrium at every round of retrading. We then show that the converging sequence of allocations generated by myopic retrading can also be supported along some retrade-proof Subgame Perfect Equilibrium path when traders anticipate future rounds of retrading.

Keywords: Market Games; Retrading; Myopic versus Far-sighted Behavior; Retrade Proofness (search for similar items in EconPapers)
Pages: 26 pages
Date: 2002-02
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

Published in Journal of Economic Theory, 115, 151-81, 2004

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Related works:
Journal Article: Retrading in market games (2004)
Working Paper: Retrading in Market Games (2001)
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