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Competition with Indivisibilities and Few Traders

Author

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  • Cesar Martinelli

    (Interdisciplinary Center for Economic Science and Department of Economics, George Mason University)

  • Jianxin Wang

    (Interdisciplinary Center for Economic Science and Department of Economics, George Mason University)

  • Weiwei Zheng

    (Interdisciplinary Center for Economic Science and Department of Economics, George Mason University)

Abstract

We study minimal conditions for competitive behavior with few agents. We adapt the strategic market game of Dubey (1982), Simon (1984) and Benassy (1986) to an indivisible good environment. We show that all Nash equilibrium outcomes with active trading are competitive if and only if there are at least two intramarginal traders in each side of the market. Unlike previous formulations, this condition can be verified directly by checking the set of competitive equilibria. In laboratory experiments, the condition we provide turns out to be enough to induce competitive results. Moreover, the performance of a sealed-bid auction following the rules of the strategic market game approaches that of its dynamic counterpart, the double auction, over time.

Suggested Citation

  • Cesar Martinelli & Jianxin Wang & Weiwei Zheng, 2019. "Competition with Indivisibilities and Few Traders," Working Papers 1073, George Mason University, Interdisciplinary Center for Economic Science.
    • Handle: RePEc:gms:wpaper:1073
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    JEL classification:

    • D41 - Microeconomics - - Market Structure, Pricing, and Design - - - Perfect Competition
    • D42 - Microeconomics - - Market Structure, Pricing, and Design - - - Monopoly
    • C92 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Group Behavior

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