Large Market Games, the Law of One Price, and Market Structure

Waseem Toraubally

doi:10.1016/j.jmateco.2018.06.007

Large Market Games, the Law of One Price, and Market Structure

Waseem Toraubally

Research output: Contribution to journal › Article › peer-review

6 Citations (Scopus)

132 Downloads (Pure)

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.

Original language	English
Pages (from-to)	13-26
Number of pages	14
Journal	Journal of Mathematical Economics
Volume	78
Early online date	10 Jul 2018
DOIs	https://doi.org/10.1016/j.jmateco.2018.06.007
Publication status	Published - Oct 2018

Bibliographical note

NOTICE: this is the author’s version of a work that was accepted for publication in Journal of Mathematical Economics. Changes resulting from the publishing process, such as peer review, editing, corrections, structural formatting, and other quality control mechanisms may not be reflected in this document. Changes may have been made to this work since it was submitted for publication. A definitive version was subsequently published in Journal of Mathematical Economics, Vol 78 (2018) DOI: 10.1016/j.jmateco.2018.06.007

© 2017, Elsevier. Licensed under the Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International http://creativecommons.org/licenses/by-nc-nd/4.0/

Keywords

Large economies
Arbitrage equilibria
Law of one price

Access to Document

10.1016/j.jmateco.2018.06.007

Post-PrintAccepted author manuscript, 976 KBLicence: CC BY-NC-ND

Cite this

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title = "Large Market Games, the Law of One Price, and Market Structure",

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. ",

keywords = "Large economies, Arbitrage equilibria, Law of one price",

author = "Waseem Toraubally",

note = "NOTICE: this is the author{\textquoteright}s version of a work that was accepted for publication in Journal of Mathematical Economics. Changes resulting from the publishing process, such as peer review, editing, corrections, structural formatting, and other quality control mechanisms may not be reflected in this document. Changes may have been made to this work since it was submitted for publication. A definitive version was subsequently published in Journal of Mathematical Economics, Vol 78 (2018) DOI: 10.1016/j.jmateco.2018.06.007 {\textcopyright} 2017, Elsevier. Licensed under the Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International http://creativecommons.org/licenses/by-nc-nd/4.0/ ",

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doi = "10.1016/j.jmateco.2018.06.007",

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N1 - NOTICE: this is the author’s version of a work that was accepted for publication in Journal of Mathematical Economics. Changes resulting from the publishing process, such as peer review, editing, corrections, structural formatting, and other quality control mechanisms may not be reflected in this document. Changes may have been made to this work since it was submitted for publication. A definitive version was subsequently published in Journal of Mathematical Economics, Vol 78 (2018) DOI: 10.1016/j.jmateco.2018.06.007 © 2017, Elsevier. Licensed under the Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International http://creativecommons.org/licenses/by-nc-nd/4.0/

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N2 - 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.

AB - 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.

KW - Large economies

KW - Arbitrage equilibria

KW - Law of one price

UR - https://www.sciencedirect.com/science/article/pii/S0304406818300697

U2 - 10.1016/j.jmateco.2018.06.007

DO - 10.1016/j.jmateco.2018.06.007

M3 - Article

SN - 0304-4068

VL - 78

SP - 13

EP - 26

JO - Journal of Mathematical Economics

JF - Journal of Mathematical Economics

ER -

Large Market Games, the Law of One Price, and Market Structure

Abstract

Bibliographical note

Keywords

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