Cournot–Walras equilibrium as a subgame perfect equilibrium

Busetto, F., Codognato, G., and Ghosal, S. (2008) Cournot–Walras equilibrium as a subgame perfect equilibrium. International Journal of Game Theory, 37(3), pp. 371-386. (doi:10.1007/s00182-008-0123-8)

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Abstract

In this paper, we investigate the problem of the strategic foundation of the Cournot–Walras equilibrium approach. To this end, we respecify à la Cournot–Walras the mixed version of a model of simultaneous, noncooperative exchange, originally proposed by Lloyd S. Shapley. We show, through an example, that the set of the Cournot–Walras equilibrium allocations of this respecification does not coincide with the set of the Cournot–Nash equilibrium allocations of the mixed version of the original Shapley’s model. As the nonequivalence, in a one-stage setting, can be explained by the intrinsic two-stage nature of the Cournot–Walras equilibrium concept, we are led to consider a further reformulation of the Shapley’s model as a two-stage game, where the atoms move in the first stage and the atomless sector moves in the second stage. Our main result shows that the set of the Cournot–Walras equilibrium allocations coincides with a specific set of subgame perfect equilibrium allocations of this two-stage game, which we call the set of the Pseudo–Markov perfect equilibrium allocations.

Item Type:Articles
Status:Published
Refereed:Yes
Glasgow Author(s) Enlighten ID:Ghosal, Professor Sayantan
Authors: Busetto, F., Codognato, G., and Ghosal, S.
College/School:College of Social Sciences > Adam Smith Business School > Economics
Journal Name:International Journal of Game Theory
ISSN:0020-7276
ISSN (Online):1432-1270
Published Online:01 August 2008

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