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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.
|Glasgow Author(s) Enlighten ID:||Ghosal, Professor Sayantan|
|Authors:||Chatterji, S., and Ghosal, S.|
|College/School:||College of Social Sciences > Adam Smith Business School > Economics|
|Journal Name:||Journal of Economic Theory|