Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/221273 
Year of Publication: 
1990
Series/Report no.: 
Discussion Paper No. 914
Publisher: 
Northwestern University, Kellogg School of Management, Center for Mathematical Studies in Economics and Management Science, Evanston, IL
Abstract: 
An independent private values model of trade with m buyers and m sellers is considered in which price is chosen to equate revealed demand and supply. In ever symmetric Bayesian Nash equilibrium, each trader does not act as a price-taker, but instead strategically misrepresents his true demand/supply to influence price in his favor. This misrepresentation causes inefficiency. It is shown that the amount by which a trader misreports is 0(1/m) and the corresponding influence is 0(1/m). Price-taking behavior and its associated efficiency thus quickly emerges despite the asymmetric information and the noncooperative behavior of traders.
Document Type: 
Working Paper

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