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- Title
The transition from bargaining to a competitive market.
- Authors
Williams, Steven R.
- Abstract
Intuitively, people who meet to trade face a bargaining problem if several of them, with opposing interests, can influence the outcome of trade through their behavior. Traders constitute a competitive market only if the effect of any trader on the outcome of trade is insignificant. Analysis of bargaining using noncooperative game theory has been a lively research topic over the past ten years, while the formalization of perfectly competitive markets using a continuum of traders is now several decades old. In this article the author discuss a line of research that studies the transition between these two theories, that shows how a bargaining problem is transformed into a market as the number of traders increases. Incomplete information is an essential feature of the model that the author discuss. In order to explain how traders achieve a competitive equilibrium, it is standard to assume that all potential gains from trade are commonly known at the outset. In contrast, each trader in the model that the author describe privately knows his own preferences. A second feature is that a market with any finite number of traders on each side is modeled, rather than one with a continuum of traders.
- Subjects
COLLECTIVE bargaining; INVESTORS; MARKETS; BUSINESS negotiation; GAME theory; ECONOMIC competition; ECONOMIC equilibrium
- Publication
American Economic Review, 1990, Vol 80, Issue 2, p227
- ISSN
0002-8282
- Publication type
Article