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A market game with symmetric limit orders

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  • Liao, Mouhua

Abstract

We extend the market game with symmetric limit orders studied in Weyers (2003, 2004) to a many-good setup. Our limit orders are symmetric in terms of payment and determine a unique consistent price system for every strategy profile. The limit orders studied in the previous literature—see Dubey (1982), Simon (1984) and Mertens (2003)—share none of these properties. It is shown that three mild market-thickness conditions imply that the set of symmetric Nash equilibrium outcomes coincides with the set of price-taking equilibrium outcomes. First, the Dubey and Shubik (1978) refinement is used to eliminate no-trade as an equilibrium. Second, any price-taking equilibrium has trade in each market. Third, there are at least two agents of each type, where a type is determined by preferences and endowments. The last two conditions enable applying the Bertrand argument. This paper thus provides new insights to Bertrand’s (1883) classic critique of Cournot and the associated problem of capacity constraints raised by Edgeworth (1897).

Suggested Citation

  • Liao, Mouhua, 2016. "A market game with symmetric limit orders," Journal of Mathematical Economics, Elsevier, vol. 64(C), pages 66-76.
    • Handle: RePEc:eee:mateco:v:64:y:2016:i:c:p:66-76
    DOI: 10.1016/j.jmateco.2016.03.007
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    Cited by:

    1. Mouhua Liao, 2019. "A Multi-Stage Market Game that Implements any Walrasian Allocation in any Pure-Exchange Environment," Working Papers 2019-07-03, Wang Yanan Institute for Studies in Economics (WISE), Xiamen University.

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