Dynamic Imperfectly Competitive Markets: A Non-Recursive Approach
54 Pages Posted: 20 Mar 2019 Last revised: 25 Apr 2022
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: Suggested Citation