A strategic market game with limit prices. (Q1401110)

The author analyzes a market game for the case of two goods which is based on the limit-price mechanism proposed by Mertens. It is a mechanism for determining prices and final allocations when the players trade a finite number of goods by placing an arbitrary number of market or limit orders. The limit-price mechanism allows the players to refuse to trade at unfavorable prices. The case of a no-trade equilibrium is examined, where no one offers to sell or buy anything. It is shown that the no-trade equilibrium is robust in the sense that it is a Nash equilibrium in undominated strategies of all the replicated games.