A Note on Price Instability in General Equilibrium

15 Pages Posted: 11 Sep 2018

See all articles by Dmitry Levando

Dmitry Levando

National Research University Higher School of Economics

Maxim Sakharov

Bauman Moscow State Technical University

Date Written: August 28, 2018

Abstract

We are developing a theory of equilibrium market instability in a general equilibrium duopoly caused merely by strategic trade. An economy is described as a strategic market game, where players have market power as buyers and sellers. First order conditions of individual decisions are first kind integral equations of Fredholm, with probability distributions as unknown variables. The game has multiple mixed strategies as Nash equilibria, which cannot be constructed precisely. Resulting market price does not have information discovery properties. We demonstrate the multiplicity of Pareto-improving pure strategies, and their induced prices and allocations, which can described as 'natural instabilities' within markets.

Keywords: strategic market games, ill-posed problems, common knowledge, rational expectations, efficient market, price fluctuations, noise trade, sun-spot equilibrium

JEL Classification: C68, C61, C72, D58, E30, E37, G14, G17

Suggested Citation

Levando, Dmitry and Sakharov, Maxim, A Note on Price Instability in General Equilibrium (August 28, 2018). Available at SSRN: https://ssrn.com/abstract=3239955 or http://dx.doi.org/10.2139/ssrn.3239955

Dmitry Levando (Contact Author)

National Research University Higher School of Economics ( email )

Myasnitskaya street, 20
Moscow, Moscow 119017
Russia

Maxim Sakharov

Bauman Moscow State Technical University ( email )

Brigadirskiy pereulok, 14
Moscow, 105005
Russia

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
6
Abstract Views
188
PlumX Metrics