Cournot-Walras Equilibrium as a Subgame Perfect Equilibrium
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Working paper
Issue number:
837
Publisher:
University of Warwick
Year:
2008
In this paper, we investigate the problem of the strategic foundation of the Cournot-Walras equilibrium approach. To this end, we respecify µa la Cournot-Walras the mixed version of a model of simultaneous, non-cooperative 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.