Complexity and Competition, Part I: Sequential Matching
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Authors
Gale, Douglas
Sabourian, Hamid
Publication Date
2004-06-16Series
Cambridge Working Papers in Economics
Publisher
Faculty of Economics
Language
en_GB
Type
Working Paper
Metadata
Show full item recordCitation
Gale, D., & Sabourian, H. (2004). Complexity and Competition, Part I: Sequential Matching. https://doi.org/10.17863/CAM.5203
Abstract
This paper uses the complexity of non-competitive behaviour to provide a new justification for competitive equilibrium in the context of extensive-form market games with a finite number of agents. This paper demonstrates that if rational agents have (at least at the margin) an aversion for complex behaviours then their maximizing behaviour will result in simple behavioural rules and thereby in a perfectly competitive outcome. In particular, we consider sequential market games with heterogeneous sets of buyers and sellers and show that if the complexity costs of implementing strategies enter players� preferences, together with the standard payoff in the game, then every equilibrium strategy profile induces a competitive outcome. This is done for sequential deterministic matching/bargaining models in which at any date either the identities of the matched players are determined exogenously or one player is exogenously selected to choose his partner and make a price proposal.
Keywords
matching, complexity, automation, bounded rationality, Markov equilibrium, competitive equilibrium, Classification-JEL: C72, D78, D5, bargaining
Identifiers
This record's DOI: https://doi.org/10.17863/CAM.5203
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