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Smooth Strategic Market Game Mechanisms with Coordinating Market Prices

  • Economics
  • Mathematics


This paper analyses strategic trade within pure exchange economies. In the tradition of the ‘Shapley-Shubik’ case, the signals agents send to the markets are aggregated into market prices, proceeding which net trades are determined via a distribution mechanism dependent on both individual activity and prices. The pricing and distribution mechanisms we use are abstractly given smooth mappings, which, combined with various axioms, propagate several desirable properties consistent with elementary economic intuition. ‘Active interior’ Nash equilibria in the defined normal form game are characterised in terms of first order conditions, using which we demonstrate that in finite economies, equilibria resulting from trade within the market game are never Walrasian, and, furthermore, they are Pareto inefficient. The convergence of a sequence of active interior Nash equilibria to a Walrasian equilibrium of the underlying competitive economy is also investigated.

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