Strategic market games with interim price information

Alexander Zimper ()
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Alexander Zimper: University of Pretoria
Authors registered in the RePEc Author Service: Andreas Wörgötter ()

No 205, ERSA Working Paper Series from Economic Research Southern Africa

Abstract: Is it possible to incorporate the rational expectations concept of interim price information from competitive equilibrium models into simultaneous move games? In addressing consistency and measurability issues that arise from the "chicken-egg" problem of rational expectations, strategic market games with interim price information do exactly that. In these non-Bayesian games informed traders simultaneously submit their linear demand-schedules to a Walrasian auctioneer after they have observed their private signals and their interim price information. I show that a specific class of Bayesian Nash equilibria from Bayesian market games (Kyle 1989; Vives 2011) carries over to 'become' Nash equilibria of strategic market games with interim price information. I also show that conditioning on interim price information may give rise to Nash equilibria that support price-collusion between informed traders against a liquidity trader (e.g., the government in a procurement situation).

Keywords: Rational expectations; Bayesian Nash equilibria; Measurability; Price-collusion (search for similar items in EconPapers)
JEL-codes: C72 D43 D52 D82 (search for similar items in EconPapers)
Date: 2025-08
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Published in ERSA Working Paper Series, August 2025

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