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Market Power and Information Revelation in Dynamic Trading

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  • Piero Gottardi
  • Roberto Serrano

Abstract

We study a strategic model of dynamic trading where agents are asymmetrically informed over common value sources of uncertainty. There is a continuum of buyers and a finite number n of sellers. All buyers are uninformed, while at least one seller is privately informed about the true state of the world. When n = 1, full information revelation never occurs in equilibrium and the only information transmission happens in the first period. With n > 1 the outcome depends both on the structure of the sellers’ information and, even more importantly, on the intensity of competition allowed by the trading rules. When there is intense competition (absence of clienteles), information is fully and immediately revealed to the buyers in every equilibrium for n large enough, regardless of the number of informed sellers. On the other hand, for trading arrangements characterized by less intense forms of competition (presence of clienteles), for any n we always have equilibria where information is never fully revealed. Moreover, in that case, when only one seller is informed, for many parameter configurations there are no equilibria with full information revelation, even for large n.

Suggested Citation

  • Piero Gottardi & Roberto Serrano, 2004. "Market Power and Information Revelation in Dynamic Trading," CESifo Working Paper Series 1300, CESifo.
    • Handle: RePEc:ces:ceswps:_1300
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    References listed on IDEAS

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    1. Martin W. Cripps & Jeroen M. Swinkels, 2006. "Efficiency of Large Double Auctions," Econometrica, Econometric Society, vol. 74(1), pages 47-92, January.
    2. Shapley, Lloyd S & Shubik, Martin, 1977. "Trade Using One Commodity as a Means of Payment," Journal of Political Economy, University of Chicago Press, vol. 85(5), pages 937-968, October.
    3. Vives Xavier, 1995. "The Speed of Information Revelation in a Financial Market Mechanism," Journal of Economic Theory, Elsevier, vol. 67(1), pages 178-204, October.
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    Citations

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    Cited by:

    1. Michael Peters & Sergei Severinov, 2008. "An ascending double auction," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 37(2), pages 281-306, November.
    2. Yusuke Kamishiro & Roberto Serrano, 2009. "Equilibrium Blocking in Large Quasilinear Economies," Working Papers wp2009_0911, CEMFI.
    3. Bochet, Olivier, 2007. "Switching from complete to incomplete information," Journal of Mathematical Economics, Elsevier, vol. 43(6), pages 735-748, August.
    4. Peters, Michael & Severinov, Sergei, 2006. "Internet auctions with many traders," Journal of Economic Theory, Elsevier, vol. 130(1), pages 220-245, September.
    5. Dipjyoti Majumdar & Artyom Shneyerov & Huan Xie, 2010. "How Optimism Leads to Price Discovery and Efficiency in a Dynamic Matching Market," Working Papers 10004, Concordia University, Department of Economics.
    6. Peck, James, 2014. "A battle of informed traders and the market game foundations for rational expectations equilibrium," Games and Economic Behavior, Elsevier, vol. 88(C), pages 153-173.
    7. Franco Mariuzzo & Patrick Paul Walsh & Ciara Whelan, 2004. "EU Merger Control in Differentiated Product Industries," CESifo Working Paper Series 1312, CESifo.
    8. Perea ý Monsuwé, A., 2005. "A model of minimal probabilistic belief revision," Research Memorandum 035, Maastricht University, Maastricht Research School of Economics of Technology and Organization (METEOR).
    9. J.Ramon Martinez-Resano, 2005. "Size And Heterogeneity Matter. A Microstructure-Based Analysis Of Regulation Of Secondary Markets For Government Bonds," Finance 0508007, University Library of Munich, Germany.
    10. Palazzo, Francesco & Zhang, Min, 2017. "Information disclosure and asymmetric speed of learning in booms and busts," Economics Letters, Elsevier, vol. 158(C), pages 37-40.
    11. Dmitry Levando, 2012. "A Survey Of Strategic Market Games," Economic Annals, Faculty of Economics and Business, University of Belgrade, vol. 57(194), pages 63-106, July - Se.
    12. Zhou, Deqing, 2016. "Public disclosure, information leakage, and strategic trading," Economics Letters, Elsevier, vol. 147(C), pages 46-50.
    13. Sergei Severinov & Michael Peters, 2004. "Internet Trading Mechanisms And Rational Expectations," Econometric Society 2004 North American Winter Meetings 551, Econometric Society.
    14. José Ramón Martínez-Resano, 2005. "Size and heterogeneity matter. A microstructure-based analysis of regulation of secondary markets for governments bonds," Occasional Papers 0501, Banco de España.
    15. Yusuke Kamishiro & Roberto Serrano, 2011. "Equilibrium Blocking in Large Quasilinear Economies," Mathematics of Operations Research, INFORMS, vol. 36(3), pages 552-567, August.
    16. Isaac, Tanguy, 2011. "A new equilibrium in the one-sided asymmetric information market with pairwise meetings," Mathematical Social Sciences, Elsevier, vol. 61(3), pages 152-156, May.
    17. Dipjyoti Majumdar & Artyom Shneyerov & Huan Xie, 2016. "An optimistic search equilibrium," Review of Economic Design, Springer;Society for Economic Design, vol. 20(2), pages 89-114, June.
    18. Isaac Tanguy, 2010. "Information Revelation in Markets with Pairwise Meetings: Complete Revelation in Dynamic Analysis," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 10(1), pages 1-17, January.

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    More about this item

    Keywords

    asymmetric information; information revelation; dynamic trading; oligopolistic competition; clienteles;
    All these keywords.

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • C78 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Bargaining Theory; Matching Theory
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness

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