Dynamic Imperfectly Competitive Markets: A Non-Recursive Approach

54 Pages Posted: 20 Mar 2019 Last revised: 25 Apr 2022

See all articles by Marzena J. Rostek

Marzena J. Rostek

University of Wisconsin - Madison

Ji Hee Yoon

University College London

Date Written: October 28, 2021

Abstract

We study markets based on the uniform-price double auction with a finite number of periods and traders who have private information about their demands. The model accommodates the heterogeneity in the traders' risk preferences, general interdependence in traders' valuations, and a variety of statistics of outcomes they condition their demands on. We show that the traders' price impacts are sufficient statistics for traders' equilibrium demands, including inference coefficients. This allows a nonrecursive equilibrium characterization which eliminates the information about the joint distribution of future prices that a recursive characterization would require. Equilibrium strategies depend on the entire history. In markets with heterogeneous traders, changes in transparency affect the traders' price impact and the distribution of risk among the traders. For any information structure, increasing transparency in early rounds increases efficiency provided that there are sufficiently many trading rounds; introducing sufficiently many rounds improves welfare.

Keywords: Imperfectly competitive markets, Uniform-price auction, Divisible goods, Transparency, Contingent variables

Suggested Citation

Rostek, Marzena J. and Yoon, Ji Hee, Dynamic Imperfectly Competitive Markets: A Non-Recursive Approach (October 28, 2021). Available at SSRN: https://ssrn.com/abstract=3344645 or http://dx.doi.org/10.2139/ssrn.3344645

Marzena J. Rostek

University of Wisconsin - Madison ( email )

1180 Observatory Drive
Madison, WI 53703
United States
(608) 262-6723 (Phone)
(608) 262-2033 (Fax)

HOME PAGE: http://www.ssc.wisc.edu/~mrostek

Ji Hee Yoon (Contact Author)

University College London ( email )

Gower Street
London, WC1E 6BT
United Kingdom

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