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Large market games, the law of one price, and market structure

Research output: Contribution to Journal/MagazineJournal articlepeer-review

Published
<mark>Journal publication date</mark>10/2018
<mark>Journal</mark>Journal of Mathematical Economics
Volume78
Number of pages14
Pages (from-to)13-26
Publication StatusPublished
Early online date10/07/18
<mark>Original language</mark>English

Abstract

This paper introduces a new class of market games featuring multiple posts per commodity, in which trading posts are privately owned. It is demonstrated via three robust counterexamples, that in this setting the law of one price fails, thus showing, contrary to longstanding belief in the literature, that price dispersion in large market games is extremely robust. Most importantly, it is established that even in economies with a continuum of small agents and infinitely many atoms (all of whom can arbitrage prices if they so wish), and an infinite number of markets per commodity, the set of equilibria—and the resulting market structure—is influenced, both by strategic behaviour, and private ownership of posts.