q-fin updates on arXiv.org
Wed, 04 Mar 2020 06:01:51 GMT language
We consider a market in which both suppliers and consumers compete for a
product via scalar-parameterized supply offers and demand bids.
Scalar-parameterized offers/bids are appealing due to their modeling simplicity
and desirable mathematical properties with the most prominent being bounded
efficiency loss and price markup under strategic interactions. Our model
incorporates production capacity constraints and minimum inelastic demand
requirements. Under perfect competition, the market mechanism yields
allocations that maximize social welfare. When market participants are
price-anticipating, we show that there exists a unique Nash equilibrium, and
provide an efficient way to compute the resulting market allocation. Moreover,
we explicitly characterize the bounds on the welfare loss and prices observed
at the Nash equilibrium.