Noncooperative exchange using money and broker-dealers (Q799461)

This paper presents a model of exchange in which a single commodity (money) serves as a means of payment and all trade must pass through exogeneously designated brokers. The exchange economy is modeled as a noncooperative game in which players move simultaneously, are aware of each others' endowments and utilities, and offer to trade each good in one of two markets (a buy market or a sell market). A simple mechanism for the determination of brokers' buy and sell prices, brokers' profits, and traders' allocations is specified. These depend in a natural way on the buy and sell decisions of all market participants. The existence of a nontrivial noncooperative equilibrium is proved and bounds on prices and buy-sell price spreads in the equilibrium are established. It is shown that if the economy is appropriately replicated (the set of traders is replicated while the number of brokers remains constant, but broker endowments of money are replicated) a Cournot-Walras equilibrium exists where traders may behave competitively, taking prices as fixed, while brokers behave noncooperatively. A model with a broker clearing house and failure to deliver rules is also discussed. The method of analysis in the paper closely follows that of \textit{P. Dubey} and the second author in ''The noncooperative equilibrium of a closed trading economy with market supply and bidding strategies'' [J. Econ. Theory 17, 1-20 (1978; Zbl 0385.90020)].