Publication Type

Journal Article

Publication Date

2-2004

Abstract

We reformulate the local stability analysis of market equilibria in a competitive market as a local coordination problem in a market game, where the map associating market prices to best-responses of all traders is common knowledge and well-defined both in and out of equilibrium. Initial expectations over market variables differ from their equilibrium values and are not common knowledge. This results in a coordination problem as traders use the structure of the market game to converge back to equilibrium. We analyse a simultaneous move and a sequential move version of the market game and explore the link with local rationalizability.

Keywords

coordination, markets, rationalizability, stability

Discipline

Economic Theory

Research Areas

Economic Theory

Publication

Journal of Economic Theory

Volume

114

Issue

2

First Page

255

Last Page

279

ISSN

0022-0531

Identifier

10.1016/S0022-0531(03)00105-4

Publisher

Elsevier

Creative Commons License

Creative Commons Attribution-Noncommercial-No Derivative Works 4.0 License
This work is licensed under a Creative Commons Attribution-Noncommercial-No Derivative Works 4.0 License.

Additional URL

http://dx.doi.org/10.1016/S0022-0531(03)00105-4

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