Emergence of price-taking behavior (Q2206009)

This article develops a disequilibrium approach to perfectly competitive equilibrium prices. It does so by assuming that all rates of exchange and substitution are expressible in terms of a money commodity. Differences in these rates among individuals become thus differences in personal prices or valuations inducing trade until valuations coincide, which coincidence is shown to correspond to the perfectly competitive outcome. This conclusion is independent of the circumstances surrounding trade while agents are allowed to behave in adaptive, even myopic manner rather than according to some notion of rationality. Moreover, ``modulo a money commodity, this paper argues that bilateral exchange may serve [such agents] well''. No market participants or products enter or exit the economy. Each phase of trading only reallocates stable total holdings among fixed agents. It is seen as one session of market-clearing double auction, which somehow ``shrinks the core'' and thereby repeated sessions substitute for replication of agents. Three are the kinds of readers who would be interested in such a study: First, behavioral or mathematical economists, concerned with achieving competitive equilibrium in a constructive manner; second, computer scientists engaged with distributed or parallel programming; and third, mathematicians or optimizers dealing with non-smooth data.