We propose an approach to restricting the set of equilibria in a market game and use it to assess the robustness of the price dispersion results obtained by Koutsougeras [2003, J. Econ. Theory 108, 169–175] in the multiple trading posts setup. More precisely, we perturb the initial game by the introduction of transaction costs and our main results are the following. (i) No equilibrium with price dispersion of the game with costless transactions can be approached by equilibria with positive transaction costs as costs get arbitrarily small. (ii) When this type of perturbation is considered the set of equilibrium outcomes is not affected by the number of trading posts. In addition, the analysis hints at conditions required for non-zero transaction costs to serve as a source of price dispersion in this class of exchange economies.
Strategic market games; law of one price; perturbed games; equilibrium refinement;
- C72: Noncooperative Games
- D43: Oligopoly and Other Forms of Market Imperfection
- D50: General
TSE Working Paper, n. 11-308, August 2011