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Competitive Behavior in Market Games: Evidence and Theory

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Competitive Behavior in Market Games: Evidence and Theory. / Duffy, John; Matros, Alexander; Temzelides, Ted.

In: Journal of Economic Theory, Vol. 146, No. 4, 07.2011, p. 1437-1463.

Research output: Contribution to Journal/MagazineJournal articlepeer-review

Harvard

Duffy, J, Matros, A & Temzelides, T 2011, 'Competitive Behavior in Market Games: Evidence and Theory', Journal of Economic Theory, vol. 146, no. 4, pp. 1437-1463. https://doi.org/10.1016/j.jet.2011.05.013

APA

Duffy, J., Matros, A., & Temzelides, T. (2011). Competitive Behavior in Market Games: Evidence and Theory. Journal of Economic Theory, 146(4), 1437-1463. https://doi.org/10.1016/j.jet.2011.05.013

Vancouver

Duffy J, Matros A, Temzelides T. Competitive Behavior in Market Games: Evidence and Theory. Journal of Economic Theory. 2011 Jul;146(4):1437-1463. https://doi.org/10.1016/j.jet.2011.05.013

Author

Duffy, John ; Matros, Alexander ; Temzelides, Ted. / Competitive Behavior in Market Games: Evidence and Theory. In: Journal of Economic Theory. 2011 ; Vol. 146, No. 4. pp. 1437-1463.

Bibtex

@article{7d607ab56b9543af9a0c52e7040e5a65,
title = "Competitive Behavior in Market Games: Evidence and Theory",
abstract = "We explore whether competitive outcomes arise in an experimental implementation of a market game, introduced by Shubik (1972). Market games obtain Pareto inferior (strict) Nash equilibria, in which some markets are closed. We find that subjects do not coordinate on autarkic Nash equilibria, but favor more efficient Nash equilibria in which all markets are open. As the number of subjects participating in the market game increases, the Nash equilibrium they achieve approximates the associated Walrasian equilibrium of the underlying economy. Motivated by these findings, we investigate theoretically whether evolutionary forces lead to Walrasian outcomes in market games. We introduce a strong version of evolutionary stable strategies (SESS) for finite populations. Our concept requires stability against deviations by coalitions of agents. A small coalition of trading agents is sufficient for Pareto-improving trade to be generated. In addition, provided that agents lack market power, Nash equilibria corresponding to approximate competitive outcomes constitute the only approximate SESS.",
keywords = "Market games, Full Nash equilibrium, Market power, Competition, Experimental economics, Evolutionary stability",
author = "John Duffy and Alexander Matros and Ted Temzelides",
year = "2011",
month = jul,
doi = "10.1016/j.jet.2011.05.013",
language = "English",
volume = "146",
pages = "1437--1463",
journal = "Journal of Economic Theory",
issn = "0022-0531",
publisher = "ELSEVIER ACADEMIC PRESS INC",
number = "4",

}

RIS

TY - JOUR

T1 - Competitive Behavior in Market Games: Evidence and Theory

AU - Duffy, John

AU - Matros, Alexander

AU - Temzelides, Ted

PY - 2011/7

Y1 - 2011/7

N2 - We explore whether competitive outcomes arise in an experimental implementation of a market game, introduced by Shubik (1972). Market games obtain Pareto inferior (strict) Nash equilibria, in which some markets are closed. We find that subjects do not coordinate on autarkic Nash equilibria, but favor more efficient Nash equilibria in which all markets are open. As the number of subjects participating in the market game increases, the Nash equilibrium they achieve approximates the associated Walrasian equilibrium of the underlying economy. Motivated by these findings, we investigate theoretically whether evolutionary forces lead to Walrasian outcomes in market games. We introduce a strong version of evolutionary stable strategies (SESS) for finite populations. Our concept requires stability against deviations by coalitions of agents. A small coalition of trading agents is sufficient for Pareto-improving trade to be generated. In addition, provided that agents lack market power, Nash equilibria corresponding to approximate competitive outcomes constitute the only approximate SESS.

AB - We explore whether competitive outcomes arise in an experimental implementation of a market game, introduced by Shubik (1972). Market games obtain Pareto inferior (strict) Nash equilibria, in which some markets are closed. We find that subjects do not coordinate on autarkic Nash equilibria, but favor more efficient Nash equilibria in which all markets are open. As the number of subjects participating in the market game increases, the Nash equilibrium they achieve approximates the associated Walrasian equilibrium of the underlying economy. Motivated by these findings, we investigate theoretically whether evolutionary forces lead to Walrasian outcomes in market games. We introduce a strong version of evolutionary stable strategies (SESS) for finite populations. Our concept requires stability against deviations by coalitions of agents. A small coalition of trading agents is sufficient for Pareto-improving trade to be generated. In addition, provided that agents lack market power, Nash equilibria corresponding to approximate competitive outcomes constitute the only approximate SESS.

KW - Market games

KW - Full Nash equilibrium

KW - Market power

KW - Competition

KW - Experimental economics

KW - Evolutionary stability

U2 - 10.1016/j.jet.2011.05.013

DO - 10.1016/j.jet.2011.05.013

M3 - Journal article

VL - 146

SP - 1437

EP - 1463

JO - Journal of Economic Theory

JF - Journal of Economic Theory

SN - 0022-0531

IS - 4

ER -